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Quantile Hedging in a Semi-Static Market with Model Uncertainty
Bayraktar, Erhan - 2017
With model uncertainty characterized by a convex, possibly non-dominated set of probability measures, the investor minimizes the cost of hedging a path dependent contingent claim with given expected success ratio, in a discrete-time, semi-static market of stocks and options. Based on duality...
Persistent link: https://www.econbiz.de/10012972859
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A Darwinian Theory of Model Risk
Albanese, Claudio - 2020
Performance assessment of derivative pricing models revolves around a comparative model-risk analysis. From among the plethora of econometrically unrealistic models, the ones that survive Darwinian selection tend to generate systematic short term profits while exposing the bank to long term...
Persistent link: https://www.econbiz.de/10012840651
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Measuring Risk Structures of Assets : P-Index and C-Index
Chang, Kuo-Ping - 2023
Risk can be defined as the likelihood that you can deliver your promise. This paper has used the European put option and the European call option to construct the p-index and c-index to measure the risk levels (likelihoods) of owning or short-selling an asset when the asset provides at least δ...
Persistent link: https://www.econbiz.de/10014257646
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Liquidity Risk and Volatility Risk in Credit Spread Models : A Unified Approach
Perrakis, Stylianos - 2017
and volatility risk in the dynamics of asset value in debt rollover models. Using an innovative theoretical approach we … values from empirical studies that volatility risk, together with deteriorating bond market liquidity, decrease both debt and …
Persistent link: https://www.econbiz.de/10012973387
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Pricing Risk Under Risk Measures : An Introduction to Stochastic-Endogenous Equilibria
Ralph, Daniel - 2011
We investigate risk averse agents who manage risk by trading financial securities in a market that we call a risk market. We assume this market is perfectly competitive and complete. When risk aversion is expressed using risk measures, the (bundle of) prices for financial securities turns out to...
Persistent link: https://www.econbiz.de/10013121852
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Ambiguity, Long-Run Risks, and Asset Prices
Wei, Bin - 2019
We generalize the long-run risks (LRR) model in Bansal and Yaron (2004) by incorporating the recursive smooth ambiguity aversion preferences of Klibanoff, Marinacci, and Mukerji (2005, 2009) and time-varying ambiguity. Relative to the Bansal-Yaron model, the generalized LRR model remains...
Persistent link: https://www.econbiz.de/10012896734
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Rollover Risk and Corporate Bond Spreads
Valenzuela, Patricio - 2011
Using a novel data set and new proxies for rollover losses and market illiquidity, this paper finds that market illiquidity affects corporate bond spreads beyond a liquidity premium through a “rollover risk channel”. This effect is economically significant during episodes of market...
Persistent link: https://www.econbiz.de/10013128430
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Rollover Risk and Corporate Bond Spreads
Valenzuela, Patricio - 2010
This paper examines whether rollover risk is priced on corporate bond spreads. Using a novel data set and new proxies for rollover risk and market illiquidity, the empirical analysis developed reveals that market illiquidity affects corporate bond spreads beyond a liquidity premium through a...
Persistent link: https://www.econbiz.de/10013136794
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Expected Equity Returns Should Correlate with Idiosyncratic Risk
Bruno, Giovanni - 2018
law of one price, and is present in all but risk-neutral economies. We test the cross-sectional predictions of our theory … equity than for assets, and stronger for more levered firms — consistent with the theory. We test also the timeseries … implications of the theory. Time variation in asset ivol causes time variation in the option value of equity that translates into …
Persistent link: https://www.econbiz.de/10012910108
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CoCo Bonds with Extension Risk
De Spiegeleer, Jan - 2014
This article provides an in-depth analysis of the pricing and structuring of contingent convertibles (CoCos) with extension risk. Under the new regulatory Basel III framework, CoCo bonds can be categorised as either belonging to the Additional Tier 1 or Tier 2 capital category. The Tier 1 CoCo...
Persistent link: https://www.econbiz.de/10013059528