The introduction of derivatives on Bitcoin enables investors to hedge risk exposures in cryptocurrencies. Because of volatility swings and jumps in cryptocurrency prices, the traditional variance-based approach to obtain hedge ratios is infeasible. As a consequence, we consider two extensions of...

The rapid growth of exchange traded products (ETPs) has raised concerns about their implications for financial stability. A case in point is the abrupt market crash of short volatility strategies on February 5th 2018. In this paper, we describe this “Volmageddon” event and illustrate the...

We propose a parsimonious general equilibrium extension of the Black-Scholes economy that helps clarify how options' prices, expected returns, risk exposure, and optimal exercise policies respond to variations in the risk exposure of the underlying asset. The model allows one to separate the...

We develop a methodology for index tracking and risk exposure control using financial derivatives. Under a continuous-time diffusion framework for price evolution, we present a pathwise approach to construct dynamic portfolios of derivatives in order to gain exposure to an index and/or market...

Traditional life insurance policies offer no equity investment opportunities for the premium paid, and suffer from low returns over the long insurance terms. Modern equity-linked insurance policies offer equity investment opportunities exposed to equity market risk. To combine the low-risk of...

In this paper we pay tribute to one of the most successful financial innovations in recent times: the Credit Default Swap (CDS). Through a literature review on financial risks from 2000-2015 we develop a conceptual map to assess the importance and evolution of the CDS, along with the...

The growth in variable renewable energy (vRES) and the need for flexibility in power systems go hand in hand. We study how vRES and other factors, namely the price of substitute fuels, power price volatility, structural breaks, and seasonality impact the hedgeable power spreads (profit margins)...

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...

Prices of commodities are determined by the market forces of demand and supply and susceptible to changes due to changes in market forces. The change in market forces within a short period leads to sharp change in prices leading to price volatility. Price risk is the potential for a future price...