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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

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

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

An artificial intelligence approach to the valuation of American-style derivatives : a use of particle swarm optimization

Chen, Ren-Raw; Huang, Jeffrey; Huang, William; Yu, Robert - In: Journal of risk and financial management : JRFM 14 (2021) 2/57, pp. 1-22

. Specifically, we use swarm intelligence to find the optimal exercise boundary for an American-style derivative. Swarm intelligence …

Persistent link: https://www.econbiz.de/10012483653

Causality between arbitrage and liquidity in platinum futures

Iwatsubo, Kentaro; 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,...

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

The dynamics of foreign exchange derivative use in China

Sun, Yidi; Morley, Bruce - In: Journal of risk and financial management : JRFM 14 (2021) 7, pp. 1-18

Chinese firms, following their regulatory changes in the derivative markets. The original contributions to this literature … probability approach. The results suggest the main determinants of derivative use are the overseas trade conducted by these firms …

Persistent link: https://www.econbiz.de/10012622444

VaR and CVaR implied in option prices

Barone-Adesi, Giovanni - In: Journal of risk and financial management : JRFM 9 (2016) 1, pp. 1-6

VaR (Value at Risk) and CVaR (Conditional Value at Risk) are implied by option prices. Their relationships to option prices are derived initially under the pricing measure. It does not require assumptions about the distribution of portfolio returns. The effects of changes of measure are modest...

Persistent link: https://www.econbiz.de/10011544027

Pricing a collateralized derivative trade with a funding value adjustment

Hunzinger, Chadd B.; Labuschagne, Coenraad C. A. - In: Journal of risk and financial management : JRFM 8 (2015) 1, pp. 17-42

The 2008 credit crisis changed the manner in which derivative trades are conducted. One of these changes is the posting … adjustment to derivative prices, known as a funding value adjustment (FVA), which is interlinked with the posting of collateral … price of a collateralized derivative. The fact that the two models coincide is also verified by numerical implementation of …

Persistent link: https://www.econbiz.de/10011552865

Quadratic hedging of basis risk

Hulley, Hardy; McWalter, Thomas A. - In: Journal of risk and financial management : JRFM 8 (2015) 1, pp. 83-102

This paper examines a simple basis risk model based on correlated geometric Brownian motions. We apply quadratic criteria to minimize basis risk and hedge in an optimal manner. Initially, we derive the Föllmer–Schweizer decomposition for a European claim. This allows pricing and hedging under...

Persistent link: https://www.econbiz.de/10011552886

Risk management of interest rate derivative portfolios : a stochastic control approach

Kiriakopoulos, Konstantinos; Koulis, Alexandros - In: Journal of risk and financial management : JRFM 7 (2014) 4, pp. 130-149

In this paper we formulate the Risk Management Control problem in the interest rate area as a constrained stochastic portfolio optimization problem. The utility that we use can be any continuous function and based on the viscosity theory, the unique solution of the problem is guaranteed. The...

Persistent link: https://www.econbiz.de/10011552973