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Substitution Costs in Managed Synthetic CDOs
O'Kane, Dominic - 2013
Managed synthetic CDOs permit the dynamic substitution of credits in the reference portfolio. The expectation of investors in is that a skilled manager should be able to identify deteriorating credits before they experience a credit event and should therefore be able to remove the credit from...
Persistent link: https://www.econbiz.de/10013072231
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Valuation of Mortgage-Backed Securities : A Portfolio Credit Derivatives Approach
Lou, Wujiang - 2013
Non-agency mortgage-backed securities (MBS) are typically priced and traded on discounted cashflow basis where a cashflow projection is made under a prepayment and default scenario and discounted with a discount margin (DM) that supposedly measures credit risk. Whilest simple and intuitive to...
Persistent link: https://www.econbiz.de/10012710689
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Pricing interest rate derivatives under volatility uncertainty
Holzermann, Julian - 2020
We study the pricing of contracts in fixed income markets in the presence of volatility uncertainty. We consider an arbitrage-free bond market under volatility uncertainty. The uncertainty about the volatility is modeled by a G-Brownian motion, which drives the forward rate dynamics. The absence...
Persistent link: https://www.econbiz.de/10012175590
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The Portfolio Diversification Potential of Long VIX Futures and Options Strategies
Szado, Edward - 2019
futures and options may have the potential to provide significant diversification benefits for traditional portfolios. However …, since the term structure of VIX futures is generally upward sloping, long VIX futures positions can place a significant drag … on portfolio performance.In this paper we consider the performance of strategies that buy VIX futures or VIX call options …
Persistent link: https://www.econbiz.de/10012870101
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Selling VIX Futures and Options for Portfolio Return Enhancement
Szado, Edward - 2019
The term structure of VIX futures is generally upward sloping. The persistent VIX contango may result in abnormally … strong performance for VIX futures selling or VIX call writing strategies. However, the high volatility of volatility and … VIX futures and call option selling in a portfolio context in 2008 and 2016 as well as over a 10+ year period beginning in …
Persistent link: https://www.econbiz.de/10012870103
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Derivatives WMD, Liability Driven Investment Strategies LDI, the UK Gilt Market Crisis and Pension Fund Collapse Risk
Macey-Dare, Rupert - 2022
In his Berkshire Hathaway annual newsletter to investors c.20 years ago, Warren Buffett while discussing the Long Term Capital Management LTCM and Enron collapses, famously called derivatives: "financial weapons of mass destruction, carrying dangers that, while now latent, are potentially...
Persistent link: https://www.econbiz.de/10014238873
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Option Mispricing and Alpha Portfolios
Fulop, Andras; Li, Junye; Wang, Mo - 2022
Relying on a latent factor model with time-varying temporal dependence of systematic risk and mispricing on firm and option characteristics, we reveal economically substantial mispricing in the options market. The portfolio based on individual options alphas related to characteristics earns an...
Persistent link: https://www.econbiz.de/10013404722
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Basis Risk in Hedging a CDS Portfolio with Credit Indices
Chamizo, Alvaro - 2017
The financial crisis has raised concerns throughout the industry on the possibility that hedging credit valuation adjustment (CVA) might become increasingly difficult should the long-standing correlation between singlename and index CDS products break down. So, we provide an estimation of the...
Persistent link: https://www.econbiz.de/10012970402
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Option Pricing in an Investment Risk-Return Setting
Kim, Young Shin - 2019
In this paper, we combine modern portfolio theory and option pricing theory so that a trader who takes a position in a European option contract and the underlying assets can construct an optimal portfolio such that at the moment of the contract's maturity the contract is perfectly hedged. We...
Persistent link: https://www.econbiz.de/10012865720
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Optimal Investment in Credit Derivatives Portfolio Under Contagion Risk
Bo, Lijun - 2014
We consider the optimal portfolio problem of a power investor who wishes to allocate her wealth between several credit default swaps (CDSs) and a money market account. We model contagion risk among the reference entities in the portfolio using a reduced form Markovian model with interacting...
Persistent link: https://www.econbiz.de/10013062449