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Stange, Sebastian; Kaserer, Christoph - Center for Entrepreneurial and Financial Studies <München> - 2009

Market liquidity is the ease of trading an asset. Its risk is the potential loss, because a security can only be traded at high or prohibitive costs. While the omnipresence and importance of market liquidity is widely acknowledged, it has long remained a more or less elusive concept. Treatment...

Persistent link: https://www.econbiz.de/10005870300

Put Options Are Not Too Expensive— An Analysis of Path Peso Problems —

Branger, Nicole; Schlag, Christian - Universität <Münster, Westfalen> / Lehrstuhl für … - 2005

The observed prices of out-of-the money put options seem too high given standardderivative pricing models. One possible … explanation is a Peso problem: crashes (forwhich the payoff of a put is high) are taken into account for pricing, but are under … derived pricing restriction controllingfor the peso problem is violated.In this paper, we argue that the approach presented by …

Persistent link: https://www.econbiz.de/10005867630

Measuring Market Liquidity Risk - Which Model Works Best?

Ernst, Cornelia; Stange, Sebastian; Kaserer, Christoph - Center for Entrepreneurial and Financial Studies <München> - 2009

Market liquidity risk, the difficulty or cost of trading assets in crises, has been recognized as an important factor in risk management. Literature has already proposed several models to include liquidity risk in the standard Value-at-Risk framework. While theoretical comparisons between those...

Persistent link: https://www.econbiz.de/10005870304

Accounting for Non-Normality in Liquidity Risk

Ernst, Cornelia; Stange, Sebastian; Kaserer, Christoph - Center for Entrepreneurial and Financial Studies <München> - 2009

It has been frequently discussed, that returns are not normally distributed. Liquidity costs, measuring market liquidity, are similarly non-normally distributed displaying fat tails and skewness. Liquidity risk models either ignore this fact or use the historical distribution to empirically...

Persistent link: https://www.econbiz.de/10005870319

Investitionen in Collateralized Debt Obligations

Heidorn, Thomas; König, Lars - Frankfurt School of Finance & Management - 2003

The paper deals with the evaluation of Collateralized Debt Obligations forinvestment purposes. CDOs are classified in the asset backed environment. Itsspecific risks (market, timing, recovery, agency) are discussed. To understand theportfolio aspect, the concept of the diversity score is...

Persistent link: https://www.econbiz.de/10005865826

Modeling Default Dependence with Threshold Models

Overbeck, Ludger; Schmidt, Wolfgang - Frankfurt School of Finance & Management - 2003

We investigate the problem of modeling defaults of dependent credits.In the framework of the class of structural default models we studythreshold models where for each credit the underling ability-to-payprocess is a transformation of a Wiener processes. We propose a modelfor dependent defaults...

Persistent link: https://www.econbiz.de/10005865832

Derivatives Trading in a General Equilibrium Modelwith Stochastic Volatility and Jumps

Branger, Nicole; Schlag, Christian; Schneider, Eva - Universität <Münster, Westfalen> / Lehrstuhl für … - 2007

We perform a general equilibrium analysis in a complete markets economy whenthe dividend follows a jump-diffusion process with stochastic volatility. Agents haveCRRA utility, but differ with respect to their degree of risk aversion. The keyoutput of our analysis is the structure of the...

Persistent link: https://www.econbiz.de/10005867617

Pricing Two Trees:When Trees and Investors are Heterogeneous

Branger, Nicole; Schlag, Christian; Wu, Lue - Universität <Münster, Westfalen> / Lehrstuhl für … - 2007

We consider an exchange economy with two heterogeneous stocks and twogroups of investors. Dividends follow diusion processes, with a constant expectedgrowth rate for one stock and a stochastic drift for the other. 'Rationalinvestors' can either observe this stochastic drift without error or...

Persistent link: https://www.econbiz.de/10005867619

General Equilibriumwith Stochastic Volatility and Jumps

Branger, Nicole; Schlag, Christian; Schneider, Eva - Universität <Münster, Westfalen> / Lehrstuhl für … - 2007

In this paper we perform a general equilibrium analysis when the dividend followsa jump-diffusion process with stochastic volatility, where both the dividend itselfand its volatility can jump. We work in a complete markets economy and assumethat agents have CRRA utility, but can differ with...

Persistent link: https://www.econbiz.de/10005867620

Rational Laymen versus Over-Confident Experts:Who Survives in the Long Run?

Branger, Nicole; Schlag, Christian; Wu, Lue - Universität <Münster, Westfalen> / Lehrstuhl für … - 2007

In this paper we study the equilibrium in a heterogeneous economy with twogroups of investors. Over-confident experts incorrectly assume that their signalfor the drift of the dividend process is correlated with the true drift, butinterpret the signal otherwise perfectly. Rational laymen avoid...

Persistent link: https://www.econbiz.de/10005867621