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The effect of mean-reverting processes in the pricing of options in the energy market : an arithmetic approach
Schmeck, Maren Diane; Schwerin, Stefan - In: Risks : open access journal 9 (2021) 5, pp. 1-19
In this paper we study the effect that mean-reverting components in the arithmetic dynamics of electricity spot price have on the price of a call option on a swap. Our model allows for seasonal effects, spikes, and negative values of the price of electricity. We show that for sufficiently large...
Persistent link: https://www.econbiz.de/10012597100
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Variance and interest rate risk in unit-linked insurance policies
Baños, David; Lagunas-Merino, Marc; Ortiz-Latorre, Salvador - In: Risks : open access journal 8 (2020) 3/84, pp. 1-23
this paper, we consider a general class of stochastic volatility models written in forward variance form. We also deal with … volatility model with a Vasicek interest rate model. …
Persistent link: https://www.econbiz.de/10012293269
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Modeling momentum and reversals
Stein, Harvey J.; Pozharny, Jacob - In: Risks : open access journal 10 (2022) 10, pp. 1-10
Stock prices are well known to exhibit behaviors that are difficult to model mathematically. Individual stocks are observed to exhibit short term price reversals and long term momentum, while their industries only exhibit momentum. Here we show that individual stocks can be modeled by simple...
Persistent link: https://www.econbiz.de/10013555665
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A diversification framework for multiple pairs trading strategies
Lee, Kiseop; Leung, Tim; Ning, Boming - In: Risks : open access journal 11 (2023) 5, pp. 1-18
We propose a framework for constructing diversified portfolios with multiple pairs trading strategies. In our approach, several pairs of co-moving assets are traded simultaneously, and capital is dynamically allocated among different pairs based on the statistical characteristics of the...
Persistent link: https://www.econbiz.de/10014333526
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Pricing and hedging bond power exchange options in a stochastic string term-structure model
Blenman, Lloyd P.; Bueno-Guerrero, Alberto; Clark, Steven P. - In: Risks : open access journal 10 (2022) 10, pp. 1-17
-form expressions for pricing and hedging bond power exchange options are obtained and, as particular cases, the corresponding … equivalence of the European and the American versions of bond power exchange options are provided and the put-call parity relation … for European bond power exchange options is established. Finally, we consider several applications of our results …
Persistent link: https://www.econbiz.de/10013555525
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Lévy interest rate models with a long memory
Hainaut, Donatien - In: Risks : open access journal 10 (2022) 1, pp. 1-28
and forward measures are studied. Finally, bond options are valued with a discretization scheme and a discrete Fourier …
Persistent link: https://www.econbiz.de/10012804840
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Best-estimates in bond markets with reinvestment risk
MacKay, Anne; Wüthrich, Mario V. - In: Risks : open access journal 3 (2015) 3, pp. 250-276
The concept of best-estimate, prescribed by regulators to value insurance liabilities for accounting and solvency purposes, has recently been discussed extensively in the industry and related academic literature. To differentiate hedgeable and non-hedgeable risks in a general case, recent...
Persistent link: https://www.econbiz.de/10011300314
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Gaussian process regression for swaption cube construction under no-arbitrage constraints
Cousin, Areski; Deleplace, Adrien; Misko, Adrien - In: Risks : open access journal 10 (2022) 12, pp. 1-19
In this paper, we introduce a 3D finite dimensional Gaussian process (GP) regression approach for learning arbitrage-free swaption cubes. Based on the possibly noisy observations of swaption prices, the proposed 'constrained' GP regression approach is proven to be arbitrage-free along the strike...
Persistent link: https://www.econbiz.de/10014230924
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Do we need stochastic volatility and generalised autoregressive conditional heteroscedasticity? : Comparing squared end-of-day returns on ftse
Allen, David E.; McAleer, Michael - In: Risks : open access journal 8 (2020) 1/12, pp. 1-20
The paper examines the relative performance of Stochastic Volatility (SV) and Generalised Autoregressive Conditional … Heteroscedasticity (GARCH) (1,1) models fitted to ten years of daily data for FTSE. As a benchmark, we used the realized volatility (RV … two standard volatility models if the simple expedient of using lagged squared demeaned daily returns provides a better RV …
Persistent link: https://www.econbiz.de/10012203997
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Effect of variance swap in hedging volatility risk
Shen, Yang - In: Risks : open access journal 8 (2020) 3/70, pp. 1-34
This paper studies the effect of variance swap in hedging volatility risk under the mean-variance criterion. We … consider two mean-variance portfolio selection problems under Heston's stochastic volatility model. In the first problem, the … variance swap can be used to hedge against the volatility risk. In the second problem, only the bank account and the stock can …
Persistent link: https://www.econbiz.de/10012293125