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Hedging and pricing in imperfect markets under non-convexity
Assa, Hirbod; Gospodinov, Nikolay - 2014
This paper proposes a robust approach to hedging and pricing in the presence of market imperfections such as market … incompleteness and frictions. The generality of this framework allows us to conduct an in-depth theoretical analysis of hedging … proposed theoretical approach are illustrated with an application on hedging economic risk. …
Persistent link: https://www.econbiz.de/10010397681
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Theory of demand in incomplete markets
Turner, Sergio - 2005
We develop the theory of demand for commodities and assets facing incompletely insurable uncertainty. First, a Slutsky …
Persistent link: https://www.econbiz.de/10010318868
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The intertemporal relation between expected return and risk on currency
Bali, Turan G.; Yilmaz, Kamil - 2009
The literature has so far focused on the risk-return tradeoff in equity markets and ignored alternative risky assets. This paper is the first to examine the presence and significance of an intertemporal relation between expected return and risk in the foreign exchange market. The paper provides...
Persistent link: https://www.econbiz.de/10010277261
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Closed-form solutions for European and Digital calls in the Hull and White stochastic volatility model and their relation to locally R-minimizing and Delta hedges
Ewald, Christian-Oliver; Schenk-Hoppé, Klaus Reiner; … - Institut für Schweizerisches Bankwesen <Zürich> - 2006
This paper derives an analytic expression for the distribution of the average volatility in the stochastic volatility model of Hull and White. This result answers a longstanding question, posed by Hull and White (Journal of Finance 42, 1987), whether such an analytic form exists. Our findings...
Persistent link: https://www.econbiz.de/10005858327
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Dynamic utility indifference valuation via convex risk measures
Klöppel, Susanne; Schweizer, Martin - Institut für Schweizerisches Bankwesen <Zürich> - 2005
We study the dynamic utility indifference value process p(X) when the usefulness of X is evaluated via a dynamic monetary concave utility functional (DMCUF) instead of von Neumann/Morgenstern expected utility. A DMCUF is minus a dynamic convex risk measure. The key tools for our investigations...
Persistent link: https://www.econbiz.de/10005858886
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Continuous time regime switching models and applications in estimating processes with stochastic volatility and jumps
Chourdakis, Kyriakos - 2002
A regime switching model in continuous time is introduced where a variety of jumps are allowed in addition to the diffusive component. The characteristic function of the process is derived in closed form, and is subsequently employed to create the likelihood function. In addition, standard...
Persistent link: https://www.econbiz.de/10010284206
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Actuarial Transform Pricing
Ruban, Oleg; Vitiello, Luiz; Poon, Ser-Huang - Manchester Business School - 2006
This article studies four transform pricing methods in the context of generalequilibrium (GE) framework. The four methods, viz. the Esscher transform, indifferencepricing, the Wang transform, and the standard deviation loading, arepopular among actuarial literature and practice. The transform...
Persistent link: https://www.econbiz.de/10005870122
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A new predictor of real economic activity: The S&P 500 option implied risk aversion
Sarantopoulou-Chiourea, Sylvia; Skiadopoulos, George - 2015
We propose a new predictor of real economic activity (REA), namely the representative investor's implied relative risk aversion (IRRA) extracted from S&P 500 option prices. IRRA exploits the forward-looking information in option prices. It increases as risk averse investors enter the market,...
Persistent link: https://www.econbiz.de/10011380996
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Ambiguity aversion and variance premium
Miao, Jianjun; Wei, Bin; Zhou, Hao - 2018
This paper offers an ambiguity-based interpretation of variance premium - the difference between risk-neutral and objective expectations of market return variance - as a compounding effect of both belief distortion and variance differential regarding the uncertain economic regimes. Our approach...
Persistent link: https://www.econbiz.de/10012030280
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A new predictor of U.S. real economic activity: The S&P 500 option implied risk aversion
Faccini, Renato; Konstantinidi, Eirini; Skiadopoulos, George - 2018
We propose a new predictor of U.S. real economic activity (REA), namely the representative investor's implied relative risk aversion (IRRA) extracted from S&P 500 option prices. IRRA is forward-looking and hence, it is expected to be related to future economic conditions. We document that U.S....
Persistent link: https://www.econbiz.de/10011928017