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Stochastic Dominance Bounds on Derivative Prices in a Multiperiod Economy with Proportional Transaction Costs
Constantinides, George M. - 2010
By applying stochastic dominance arguments, upper bounds on the reservation write price of European calls and puts and lower bounds on the reservation purchase price of these derivatives are derived in the presence of proportional transaction costs incurred in trading the underlying security....
Persistent link: https://www.econbiz.de/10012763033
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Option Prices in a Model with Stochastic Disaster Risk
Seo, Sang Byung - 2013
Contrary to the Black-Scholes model, volatilities implied by index option prices depend on the exercise price of the option and are often higher than realized volatilities. We explain both facts in the context of a model that can also explain the mean and volatility of equity returns. Our model...
Persistent link: https://www.econbiz.de/10013073202
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Mispriced Index Option Portfolios
Constantinides, George M.; Czerwonko, Michal; Perrakis, … - 2021
The optimal portfolio of a utility-maximizing investor trading in the S&P 500 index and cash, subject to proportional transaction costs, becomes stochastically dominated when overlaid with a zero-net-cost portfolio of S&P 500 options bought at their ask and written at their bid price in most...
Persistent link: https://www.econbiz.de/10013233758
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The Asset Pricing Implications of Plausible Deniability
Back, Kerry; Carlin, Bruce; Kazem Pour, Seyed Mohammad - 2022
We derive the effect of plausible deniability on asset risk premia in a dynamic setting with correlated firm values, systematic risk, and risk-averse investors. Firms optimally exercise American disclosure options, which are more valuable due to the possibility that other correlated firms may...
Persistent link: https://www.econbiz.de/10014237687
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Dynamic Consumption and Portfolio Choice with Stochastic Volatility in Incomplete Markets
Chacko, George - 2010
preference parameters. This paper also shows that stochastic variation in volatility produces an optimal intertemporal hedging … market shows that empirically this correlation is negative and large, which implies a negative hedging demand for stocks … hedging demands by long-term, risk averse investors. A comparative statics exercise shows that the size of hedging demands is …
Persistent link: https://www.econbiz.de/10012763770
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A Nonparametric Approach to Pricing and Hedging Derivative Securities Via Learning Networks
Hutchinson, James M. - 2004
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
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Demand-Based Option Pricing
Garleanu, Nicolae - 2010
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/10012761687
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Hedge Fund Leverage
Ang, Andrew - 2011
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
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Inflation Tracking Portfolios
Downing, Chris - 2012
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
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Global Currency Hedging
Campbell, John Y. - 2007
Over the period 1975 to 2005, the US dollar (particularly in relation to the Canadian dollar) and the euro and Swiss franc (particularly in the second half of the period) have moved against world equity markets. Thus these currencies should be attractive to risk-minimizing global equity...
Persistent link: https://www.econbiz.de/10012776958