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Carry
Koijen, Ralph; Moskowitz, Tobias J; Pedersen, Lasse Heje; … - C.E.P.R. Discussion Papers - 2013
Any security’s expected return can be decomposed into its “carry” and its expected price appreciation, where carry is a model-free characteristic that can be observed in advance. While carry has been studied almost exclusively for currencies, we find that carry predicts returns both in the...
Persistent link: https://www.econbiz.de/10011083673
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Confidence Building on Euro Conversion: Theory and Evidence from Currency Options
Driessen, Joost; Perotti, Enrico C - C.E.P.R. Discussion Papers - 2004
Using a new dataset of currency option prices, we study the evolution of investor confidence in 1992-98 over the chance of individual currencies to converge to the euro. Convergence risk, which may reflect uncertainty over policy commitment as well as exogenous fundamentals, induces a level of...
Persistent link: https://www.econbiz.de/10005124133
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Asset Prices, Debt Constraints and Inefficiency
Bloise, Gaetano; Reichlin, Pietro - C.E.P.R. Discussion Papers - 2008
In this paper, we consider economies with (possibly endogenous) solvency constraints under uncertainty. Constrained inefficiency corresponds to a feasible redistribution yielding a welfare improvement beginning from every contingency reached by the economy. A sort of Cass Criterion (Cass (1972))...
Persistent link: https://www.econbiz.de/10005662321
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Indeterminacy of Competitive Equilibrium with Risk of Default
Bloise, Gaetano; Reichlin, Pietro; Tirelli, Mario - C.E.P.R. Discussion Papers - 2009
We prove indeterminacy of competitive equilibrium in sequential economies, where limited commitment requires the endogenous determination of solvency constraints preventing debt repudiation (Alvarez and Jermann (2000)). In particular, we show that, for any arbitrary value of social welfare in...
Persistent link: https://www.econbiz.de/10008566321
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Too-Systemic-To-Fail: What Option Markets Imply About Sector-wide Government Guarantees
Kelly, Bryan; Lustig, Hanno; van Nieuwerburgh, Stijn - C.E.P.R. Discussion Papers - 2012
We examine the pricing of financial crash insurance during the 2007-2009 financial crisis in U.S. option markets. A large amount of aggregate tail risk is missing from the price of financial sector crash insurance during the financial crisis. The difference in costs of out-of-the-money put...
Persistent link: https://www.econbiz.de/10011083289
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Limits to Arbitrage and Hedging: Evidence from Commodity Markets
Acharya, Viral V; Lochstoer, Lars; Ramadorai, Tarun - C.E.P.R. Discussion Papers - 2009
futures contracts. Their hedging demand is met by financial intermediaries who act as speculators, but are constrained in risk …-taking. Increases (decreases) in producers’ hedging demand (the risk-bearing capacity of speculators) increase the costs of hedging … 1980-2006, we show that producers’ hedging demand - proxied by their default risk - forecasts spot prices, futures prices …
Persistent link: https://www.econbiz.de/10005016244
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Corporate Bond Valuation and Hedging with Stochastic Interest Rates and Endogenous Bankruptcy
Acharya, Viral V; Carpenter, Jennifer - C.E.P.R. Discussion Papers - 2002
stochastic. It then uses the results to explain the dynamics of hedging. Bankruptcy rules are important determinants of corporate … produce the same prices, they can have very different hedging implications. We show that empirical results on the relation …
Persistent link: https://www.econbiz.de/10005123555
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Demand-Based Option Pricing
Garleanu, Nicolae Bogdan; Pedersen, Lasse Heje; … - C.E.P.R. Discussion Papers - 2005
We model the demand-pressure effect on prices when options cannot be perfectly hedged. The model shows that demand pressure in one option contract increases its price by an amount proportional to the variance of the unhedgeable part of the option. Similarly, the demand pressure increases the...
Persistent link: https://www.econbiz.de/10005067592
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Hedging and Vertical Integration in Electricity Markets
Aïd, René; Chemla, Gilles; Porchet, Arnaud; Touzi, Nizar - C.E.P.R. Discussion Papers - 2011
forward hedging and vertical integration are two separate mechanisms for demand and spot price risk diversification that both … forward hedging when retailers are highly risk averse. We illustrate our analysis with data from the French electricity market. …
Persistent link: https://www.econbiz.de/10008925710
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Macro-Hedging for Commodity Exporters
Borensztein, Eduardo; Jeanne, Olivier; Sandri, Damiano - C.E.P.R. Discussion Papers - 2009
This paper uses a dynamic optimization model to estimate the welfare gains of hedging against commodity price risk for … commodity-exporting countries. We show that the introduction of hedging instruments such as futures and options enhances …
Persistent link: https://www.econbiz.de/10008577805