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Hedging Under Generalized Good-Deal Bounds and Model Uncertainty

Becherer, Dirk - 2017

We study a notion of good-deal hedging, that corresponds to good-deal valuation and is described by a uniform … supermartingale property for the tracking errors of hedging strategies. For generalized good-deal constraints, defined in terms of … market prices of risk of hedging assets, a robust approach leads to a reduction or even elimination of a speculative …

Persistent link: https://www.econbiz.de/10012972303

Catastrophe Futures : Financial Markets and Changing Climate Risks

Chichilnisky, Graciela; Heal, Geoffrey - 2011

An economy faces an unknown individual risk, such as the health effects of a recently discovered environmental hazard. Opinions may be widely different about the distribution of risks across the population. We study financial markets that suffice to reach efficient allocations in this situation....

Persistent link: https://www.econbiz.de/10014045091

Customizable Pecuniary Risk and Market Incompleteness Premium

Yuan, Yiyong - 2016

We examine the optimal customization of a financial derivative in the presence of a background risk. This problem includes the model of finding the optimal constant amount of a given pecuniary risk as a degenerated case. We show the importance of this perspective with a preference-free solution...

Persistent link: https://www.econbiz.de/10012997142

Catastrophe Futures : Financial Markets and Changing Climate Risks

Chichilnisky, Graciela; Heal, Geoffrey - 2011

Persistent link: https://www.econbiz.de/10014029728

Volatility Uncertainty, Time Decay, and Option Bid-Ask Spreads in an Incomplete Market

Hsieh, PeiLin Billy - 2017

This paper documents the fact that in options markets, the (percentage) implied volatility bid-ask spread increases at an increasing rate as the option's maturity date approaches. To explain this stylized fact, this paper provides a market microstructure model for the bid-ask spread in options...

Persistent link: https://www.econbiz.de/10012974407

Variance disparity and market frictions

Park, Yang-Ho - 2019

This paper introduces a new model-free approach to measuring the expectation of market variance using VIX derivatives. This approach shows that VIX derivatives carry different information about future variance than S&P 500 (SPX) options, especially during the 2008 financial crisis. I find that...

Persistent link: https://www.econbiz.de/10012182042

Risk Sharing in International Economies and Market Incompleteness

Bakshi, Gurdip S. - 2018

We develop an incomplete markets framework to synthesize domestic and foreign stochastic discount factors (SDFs) that are consistent with limited international risk sharing. The fundamental departure in our paper is that exchange rate growth need not equal the ratio of SDFs, and we develop a...

Persistent link: https://www.econbiz.de/10012937833

Analyzing Equilibrium in Incomplete Markets with Model Uncertainty

Yoshikawa, Daisuke - 2015

In this paper, we analyze equilibrium in incomplete markets of random endowments by adopting utility indifference pricing and utility-based pricing. Addressing model uncertainty, we also consider agents who adopt max/min expected utility and a risk management policy. Using this framework, we...

Persistent link: https://www.econbiz.de/10013018753

Financial Markets, Intermediaries, and Intertemporal Smoothing

Allen, Franklin; Gale, Douglas - 2011

In an overlapping generations economy with (incomplete) financial markets but no intermediaries, there is underinvestment in safe assets. In an economy with intermediaries and no financial markets, accumulating reserves of safe assets allows returns to be smoothed, nondiversifiable risk to be...

Persistent link: https://www.econbiz.de/10014027377

Prices and Volumes of Options : A Simple Theory of Risk Sharing When Markets are Incomplete

Le Grand, Francois - 2010

We present a simple theory of business-cycle movements of option prices and volumes. This theory relies on time …

Persistent link: https://www.econbiz.de/10013136236