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Causality between arbitrage and liquidity in platinum futures

Iwatsubo, Kentarō; Watkins, Clinton - In: Journal of risk and financial management : JRFM 15 (2022) 12, pp. 1-17

Arbitrage and liquidity are interrelated. Liquidity facilitates arbitrageurs’ trading on deviations from the law of one … price. However, whether arbitrage opportunity leads to an increase or decrease in liquidity depends on the cause of the … deviation. A demand shock leads to greater liquidity, while asymmetric information is toxic to liquidity. We examine how …

Persistent link: https://www.econbiz.de/10014284282

Revisiting structural modeling of credit risk : evidence from the credit default swap (CDS) market

Huang, Zhijian; Luo, Yuchen - In: Journal of risk and financial management : JRFM 9 (2016) 2, pp. 1-20

The ground-breaking Black-Scholes-Merton model has brought about a generation of derivative pricing models that have been successfully applied in the financial industry. It has been a long standing puzzle that the structural models of credit risk, as an application of the same modeling paradigm,...

Persistent link: https://www.econbiz.de/10011543979

Capital structure arbitrage under a risk-neutral calibration

Zeitsch, Peter J. - In: Journal of risk and financial management : JRFM 10 (2017) 1, pp. 1-23

By reinterpreting the calibration of structural models, a reassessment of the importance of the input variables is undertaken. The analysis shows that volatility is the key parameter to any calibration exercise, by several orders of magnitude. To maximize the sensitivity to volatility, a simple...

Persistent link: https://www.econbiz.de/10011619118

Use of Bayesian estimates to determine the volatility parameter input in the black-scholes and binomial option pricing models

Ho, Shu Wing; Lee, Alan J.; Marsden, Alastair - In: Journal of risk and financial management : JRFM 4 (2012) 1, pp. 74-96

The valuation of options and many other derivative instruments requires an estimation of exante or forward looking volatility. This paper adopts a Bayesian approach to estimate stock price volatility. We find evidence that overall Bayesian volatility estimates more closely approximate the...

Persistent link: https://www.econbiz.de/10011555938

Multiperiod hedging using futures : mean reversion and the optimal hedging path

Rao, Vadhindran K. - In: Journal of risk and financial management : JRFM 4 (2012) 1, pp. 133-161

This paper considers the multiperiod hedging decision in a framework of mean-reverting spot prices and unbiased futures markets. The task is to determine the optimal hedging path, i.e., the sequence of positions in futures contracts with the objective of minimizing the variance of an uncertain...

Persistent link: https://www.econbiz.de/10011555950

Conserving capital by adjusting deltas for gamma in the presence of skewness

Madan, Dilip B. - In: Journal of risk and financial management : JRFM 3 (2010) 1, pp. 1-25

An argument for adjusting Black Scholes implied call deltas downwards for a gamma exposure in a left skewed market is presented. It is shown that when the objective for the hedge is the conservation of capital ignoring the gamma for the delta position is expensive. The gamma adjustment factor in...

Persistent link: https://www.econbiz.de/10011555954

Pricing perpetual American put options with asset-dependent discounting

Al-Hadad, Jonas; Palmowski, Zbigniew - In: Journal of risk and financial management : JRFM 14 (2021) 3, pp. 1-19

The main objective of this paper is to present an algorithm of pricing perpetual American put options with asset-dependent discounting. The value function of such an instrument can be described as VωAPut(s)=supτ∈TEs[e−∫0τω(Sw)dw(K−Sτ)+], where T is a family of stopping times, ω is...

Persistent link: https://www.econbiz.de/10012520043

An equilibrium-based measure of systemic risk

Ivanov, Katerina; Schulte, James; Tian, Weidong; Tseng, … - In: Journal of risk and financial management : JRFM 14 (2021) 9, pp. 1-24

This paper develops and implements an equilibrium model of systemic risk. The model derives a systemic risk measure, loss beta, in characterizing all too-big-to-fail banks using a capital insurance equilibrium. By constructing each bank's loss portfolio with a recent accounting approach, we...

Persistent link: https://www.econbiz.de/10012628273

Hedging long-dated oil futures and options using short-dated securities : revisiting Metallgesellschaft

Doran, James S.; Ronn, Ehud I. - In: Journal of risk and financial management : JRFM 14 (2021) 8, pp. 1-10

Since the collapse of the Metallgesellschaft AG due to hedging losses in 1993, energy practitioners have been concerned with the ability to hedge long-dated linear and non-linear oil liabilities with short-dated futures and options. This paper identifies a model-free non-parametric approach to...

Persistent link: https://www.econbiz.de/10012626875

GARCH option pricing models and the variance risk premium

Zhang, WenJun; Zhang, Jin E. - In: Journal of risk and financial management : JRFM 13 (2020) 3/51, pp. 1-21

In this paper, we modify Duan’s (1995) local risk-neutral valuation relationship (mLRNVR) for the GARCH option-pricing models. In our mLRNVR, the conditional variances under two measures are designed to be different and the variance process is more persistent in the risk-neutral measure than...

Persistent link: https://www.econbiz.de/10012174118

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