This paper investigates corporate hedging under regret aversion. Regret-averse firms try to avoid deviations of their hedging policy from the ex post best policy, an intuitive consideration if one has to justify one's decisions afterward. The study presents a model of a firm that faces uncertain...

We construct a derivative that depends on the SPY and VIX and, in this way, incorporates both the market risk premium and the variance risk premium. We show that the product's Sharpe ratio is higher than the SPY Sharpe ratio. If we invest $10000 into the product, the products' payoff is around...

We consider derivatives that maximize an investor's expected utility in the stochastic volatility model. We show that the optimal derivative that depends on the stock and its variance significantly outperforms the optimal derivative that depends on the stock only. Such derivatives yield a much...