We use a reinforcement model to compute the hedging policy for Credit Valuation Adjustment ( CVA ) problems. Reinforcement learning can be used to solve financial applications ofintertemporal choice. In finance, common problems of this kind include pricing and hedging ofcontingent claims,...

The aim of this paper is to develop a hedging methodology for making a portfolio of options delta, vega and gamma neutral by taking positions in other available options, and simultaneously minimizing the net premium to be paid for the hedging. A quadratic programming solution for the problem is...

Hedge Fund returns are often highly serially correlated mainly due to illiquidity exposures given that investments in such securities tend to be inactively traded and associated market prices are not always readily available. Following that, observed returns of such alternative investments tend...

We investigate the effect of including variance derivatives as calibration and hedging instruments for pricing and hedging exotic structures. This is studied empirically using market data for SPX and VIX derivatives applied in a stochastic volatility jump diffusion model

The first part of this thesis aims to analyse the weaknesses of capitalization-based indexing methods and compares different weighting strategies, which are dedicated to alleviate the conspicuous flaws. At the present day, these alternative portfolio construction schemes are popularly labelled...

During times of market turmoil, investors often seek to mitigate the risk associated with traditional investment assets such as equities and debt. The hedging, safe-haven and downside risk reduction properties of gold are examined in this paper for investors with short- and long-run horizons....

From an empirical perspective, the stochasticity of volatility is manifest, yet there have been relatively few attempts to reconcile this fact with Merton's theory of optimal portfolio selection for wealth maximising agents. In this paper we present a systematic analysis of optimal asset...

This article introduces an algorithm for tail risk hedging and compares it to other existing methods. This algorithm adjusts the exposure level based on a measure of tail risk obtained by applying Extreme Value Theory (EVT) to estimate Conditional Value at Risk (CVaR). This method is applied to...

We consider the delta-hedging strategy for a vanilla option under the discrete hedging and transaction costs, assuming that an option is delta-hedged using the Black-Scholes-Merton model with the log-normal volatility implied by the market price of the option. We analyze the expected...

Hedging of illiquid financial instruments is carried out with liquid instruments that, as a rule, have simpler payoff functions. For example, hedging of Asian or long-dated put options is carried out with vanilla puts, hedging of Bermuda swaptions is done with vanilla swaptions, etc. This kind...