In this paper the performance of locally risk-minimizing hedge strategies for European options in stochastic volatility … large class of diffusion-type stochastic volatility models, and they are as easy to implement as usual delta hedges. Our … simulation results on model risk show that the locally risk-minimizing hedges are robust with respect to uncertainty and even …

limit for their portfolio volatility that must not be exceeded.Ensuring compliance with this risk limit at any point in time … volatility which isusually accompanied either by a violation of the risk limit or by a suboptimal assetallocation yielding less …Striving for efficient asset allocation investors usually have limited risk bearingability. This results in an upper …

Trading, hedging and risk analysis of complex option portfolios depend on accurate pricing models. The modelling of … implied volatilities (IV) plays an important role, since volatility is the crucial parameter in the Black-Scholes (BS) pricing … known as volatility smiles or smirks that contradict the assumption of constant volatility in the BS pricing model. On the …

In this paper we propose the GHADA risk management model that is based on the generalized hyperbolic (GH) distribution …-heavy tails and represents the financial risk factors more appropriately. The nonparametric adaptive methodology has the desirable … property of estimating homogeneous volatility in a short time interval. For DEM/USD exchange rate data and a German bank …

-diffusion process with stochastic volatility. Agents haveCRRA utility, but differ with respect to their degree of risk aversion. The … than the more risk-averse one. Volatility derivatives, onthe other hand, are special in the sense that the direction of … percent oftotal market capitalization. In line with intuition, the less risk-averse investor holdsmore pure stock price risk …

, among others, an impact on the risk exposureof the stock. In our numerical examples the stochastic volatility is more … stochastic volatility, where both the dividend itselfand its volatility can jump. We work in a complete markets economy and … market prices of risk, the interest rate, thestock price, the risk exposure of the stock, the structure of the optimal …

volatility or stochastic jumps or both of these riskfactors. The focus is on the pricing of European options. In a first step, we … discussthe impact of the parameters in stochastic volatility models and in jump-diffusionmodels, the characteristics of the … implied volatility smile in these two models, andthe main structural differences between stochastic volatility and stochastic …

This paper presents a new approach to incorporate estimation risk into mean-variance portfolio selection. The key … contribution of our analysis is that we model the estimation risk as a second, independent source of risk. …