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Efficient hedging for a complete jump-diffusion model
Kirch, Michael; Krutchenko, R. N.; Melnikov, Aleksandr V. - 2002
This paper is devoted to the problem of hedging contingent claims in the framework of a complete two-factor jump-diffusion model. In this context, it is well understood that every contingent claim can be hedged perfectly if one invests the unique arbitrage-free price. Based on the results of H....
Persistent link: https://www.econbiz.de/10010310520
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Maximal Arbitrage
Schürger, Klaus - 2002
Let S=(S_t), t=0,1,...,T (T being finite), be an adapted R^d-valued process. Each component process of S might be interpreted as the price process of a certain security. A trading strategy H=(H_t), t= 1,...,T, is a predictable R^d-valued process. A strategy H is called extreme if it represents a...
Persistent link: https://www.econbiz.de/10010270405
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Explaining time-varying risk of electricity forwards: trading activity and news announcements
Schulz, Frowin C. - 2010
We elaborate economic explanations for the time-varying risk of month, quarter and year base load electricity forward contracts traded on the Nord Pool Energy Exchange from January 2006 to March 2010. Daily risk quantities are generated by decomposing realized volatility in its continuous and...
Persistent link: https://www.econbiz.de/10010304611
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Understanding Mortgage Spreads
Boyarchenko, Nina; Fuster, Andreas; Lucca, David O. - 2014
Spreads of agency mortgage-backed securities (MBS) vary significantly in the cross section and over time, but the sources of this variation are not well understood. We document that, in the cross section, MBS spreads adjusted for the prepayment option show a pronounced smile with respect to the...
Persistent link: https://www.econbiz.de/10011340970
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Jumps in option prices and their determinants: Real-time evidence from the E-mini S&P 500 option market
Kapetanios, George; Neumann, Michael; Skiadopoulos, George - 2014
We study the real-time characteristics and drivers of jumps in option prices. To this end, we employ high frequency data from the 24-hour E-mini S&P 500 options market. We find that option prices do not jump simultaneously across strikes and maturities and are uncorrelated with jumps in the...
Persistent link: https://www.econbiz.de/10011381002
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Arbitrage-free models of stocks and bonds
Durham, J. Benson - 2013
A small but ambitious literature uses affine arbitrage-free models to estimate jointly U.S. Treasury term premiums and the term structure of equity risk premiums. Within this approach, this paper identifies the parameter restrictions that are consistent with a simple dividend discount model,...
Persistent link: https://www.econbiz.de/10010333651
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The functional form of yield curves
Brousseau, Vincent - 2002
Yield curves built from liquid instruments tend to exhibit specific features, both in term of smoothness and in term of patterns. The paper presents empirical evidence that those liquid yiled curves frequently conform to a specific functional form. This specific functional form is predicted by a...
Persistent link: https://www.econbiz.de/10011604194
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The use of credit claims as collateral for Eurosystem credit operations
Tamura, Kentaro; Tabakis, Evangelos - 2013
Credit claims (or bank loans) represent a large share of the collateral accepted by the Eurosystem in its credit … operations in recent years. Hence the techniques and procedures used in the use of credit claims as collateral have become … accepted by the Eurosystem. While several types of credit claims are eligible as Eurosystem collateral, each type of credit …
Persistent link: https://www.econbiz.de/10011606300
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On a new class of barrier options
del Valle, Gerardo Hernández - 2014
A barrier option is a financial derivative which includes an activation (or deactivation) clause within a standard vanilla option. For instance, a copper mining company could secure to sell in at least K dollars each ton of copper during the next year, by buying M European put options. However,...
Persistent link: https://www.econbiz.de/10011445067
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Arbitrage free approximations to candidate volatility surface quotations
Madan, Dilip B.; Schoutens, Wim - In: Journal of Risk and Financial Management 12 (2019) 2, pp. 1-21
It is argued that the growth in the breadth of option strikes traded after the financial crisis of 2008 poses difficulties for the use of Fourier inversion methodologies in volatility surface calibration. Continuous time Markov chain approximations are proposed as an alternative. They are shown...
Persistent link: https://www.econbiz.de/10012611129