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Limits of Arbitrage and Primary Risk Taking in Derivative Securities
Tian, Meng; Wu, Liuren - 2021
Classic option pricing theory values a derivative contract via dynamic replication, and views the derivative as … reducing the risk in derivative investments, the remaining risk can still be large and significant due to practical limits of … arbitrage. Because of these limits, derivative securities can play primary roles in risk allocation and investors can demand …
Persistent link: https://www.econbiz.de/10013244989
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All Risks Matter
Li, Weiping - 2012
We derive the total variance risk premium for an index in the stochastic environment of Driessen, Maenhout and Vilkov (2009) and correct the previous authors omission of certain components which contribute significantly to index option expected returns. This study provides a mathematically...
Persistent link: https://www.econbiz.de/10013103853
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Valuation Uncertainty, Market Sentiment and the Informativeness of Institutional Trades
Yang, Lisa - 2016
Prior studies indicate that institutional investors are informed, in the sense that their trades predict price changes. In this study we show that return predictive ability of institutions arises (after controlling for size, book-to-market, and momentum) mainly from institutional sales of...
Persistent link: https://www.econbiz.de/10012985010
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Disentangling anomalies : risk versus mispricing
Birru, Justin; Mohrschladt, Hannes; Young, Trevor - 2020
Systematic mispricing primarily affects speculative stocks and predominantly results in overpricing, predicting lower average returns. Because speculative stocks overlap with stocks deemed risky by rational models, failing to control for exposure to systematic mispricing can bias tests of...
Persistent link: https://www.econbiz.de/10012388392
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Risk-Managed 52-Week High Industry Momentum, Momentum Crashes, and Hedging Macroeconomic Risk
Grobys, Klaus - 2017
This is the first study to investigate the profitability of Barroso and Santa-Clara's (2015) risk-managing approach for George and Hwang's (2004) 52-week high momentum strategy in an industrial portfolio setting. The findings indicate that risk-managing adds value as the Sharpe ratio increases,...
Persistent link: https://www.econbiz.de/10012964844
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Asset Pricing with Heterogeneous Agents and Long-Run Risk
Pohl, Walt - 2020
This paper shows that belief differences have strong effects on asset prices in consumption-based asset-pricing models with long-run risks. Belief heterogeneity leads to time-varying consumption and wealth shares of the agents. This time variation can resolve several asset-pricing puzzles,...
Persistent link: https://www.econbiz.de/10012853501
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Basis Risk When Hedging a Global Credit Portfolio
Chamizo, Alvaro - 2017
, the implied adjustments in capital charges could be reduced by hedging a credit derivative portfolio with a contrary …
Persistent link: https://www.econbiz.de/10012944310
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Volatility Derivatives and Downside Risk
Lin, Yueh-Neng - 2016
The challenge in long volatility strategies is to minimize the cost of carrying such insurance due to negative roll yields and negative volatility risk premia. This study proposes a hedging strategy for volatility as an asset class that provides substantial protection against market crashes,...
Persistent link: https://www.econbiz.de/10012984895
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Should Investors Learn About the Timing of Equity Risk?
Hasler, Michael - 2020
The term structure of equity risk has been shown to be downward sloping. We capture this feature using return dynamics driven by both a transitory and a permanent component. We study the asset allocation and portfolio performance when transitory and permanent components cannot be observed and...
Persistent link: https://www.econbiz.de/10012835339
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Cross-section without factors : correlation risk, strings and asset prices
Distaso, Walter; Mele, Antonio; Vilkov, Grigory - 2021 - This version: January 13, 2021
Many asset pricing theories treat the cross-section of returns volatility and correlations as two intimately related quantities driven by common factors, which hinders achieving a neat definition of a correlation premium. We formulate a model without factors, but with a continuum of securities...
Persistent link: https://www.econbiz.de/10012421289