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The Global Financial Crisis initiated a period of market turbulence and increased counterparty risk for financial institutions. Even though the Dodd-Frank Act is likely to exempt interbank foreign exchange trading from a central counterparty mandate, market participants have the option to trade...
Persistent link: https://www.econbiz.de/10013103054
the practical relevance of our network pricing approach, we apply it to the pricing and delta-hedging of Samp;P 500 …
Persistent link: https://www.econbiz.de/10012786270
We study the properties of the carry trade, a currency speculation strategy in which an investor borrows low-interest-rate currencies and lends high-interest-rate currencies. This strategy generates payoffs which are on average large and uncorrelated with traditional risk factors. We argue that...
Persistent link: https://www.econbiz.de/10012759296
We study the implications of hedging for firm financing and investment. We do so using an extensive, hand …-collected dataset on corporate hedging activities. Hedging can lower the odds of negative firm realizations, reducing the expected costs … channels (cost of borrowing and investment restrictions) through which hedging affects corporate outcomes. The analysis we …
Persistent link: https://www.econbiz.de/10013134932
We develop a tractable and flexible stochastic volatility multi-factor model of the term structure of interest rates. It features correlations between innovations to forward rates and volatilities, quasi-analytical prices of zero-coupon bond options and dynamics of the forward rate curve, under...
Persistent link: https://www.econbiz.de/10012761268
speculators are capital constrained, and commodity producers have hedging demands for commodity futures. Increases (decreases) in … producers' hedging demand (speculators' risk-capacity) increase hedging costs via price-pressure on futures, reduce producers … associated with producer hedging demand rises when speculative activity reduces. We conclude that limits to financial arbitrage …
Persistent link: https://www.econbiz.de/10013128612
We investigate the leverage of hedge funds in the time series and cross section. Hedge fund leverage is counter-cyclical to the leverage of listed financial intermediaries and decreases prior to the start of the financial crisis in mid-2007. Hedge fund leverage is lowest in early 2009 when the...
Persistent link: https://www.econbiz.de/10013129223
hedging approach can eliminate nearly 90 percent of the tracking error of more conventional inflation hedging strategies. We … also find that long-short positions in equities play a dominant role in the effective hedging of inflation risk over …
Persistent link: https://www.econbiz.de/10013105462
While gold objects have existed for thousands of years, gold's role in diversified portfolios is not well understood. We critically examine popular stories such as 'gold is an inflation hedge'. We show that gold may be an effective hedge if the investment horizon is measured in centuries. Over...
Persistent link: https://www.econbiz.de/10013088402
common practice of categorically classifying trading by hedgers as hedging while trading by speculators as speculation, as …
Persistent link: https://www.econbiz.de/10013072576