An investor faced with a contingent claim may eliminate risk by (super-)hedging in a financial market. As this is often quite expensive, we study partial hedges, which require less capital and reduce the risk. In a previous paper we determined quantile hedges which succeed with maximal...

This paper is devoted to the problem of hedging contingent claims in the framework of a complete two-factor jump-diffusion model. In this context, it is well understood that every contingent claim can be hedged perfectly if one invests the unique arbitrage-free price. Based on the results of H....

In laboratory experiments we explore the effects of communication and group decision making on investment behavior and on subjects' proneness to behavioral biases. Most importantly, we show that communication and group decision making does not impact subjects' overall proneness to biases like...

The use of catastrophe bonds (cat bonds) implies the problem of the so called basis risk, resulting from the fact that, in contrast to traditional reinsurance, this kind of coverage cannot be a perfect hedge for the primary’s insured portfolio. On the other hand cat bonds offer some very...

Risk Measurement with a Safety Belt: Pareto Meets Chebyshev Risk measures based on the Gaussian distribution are prone to understate the probability of extreme events. To capture fat tails and extreme events, we combine the Pareto law with finite variance bounds of Chebyshev. This density...

Parimutuel betting markets are simplified financial markets, and can thus provide a clearer view of pricing issues which are more complicated elsewhere. Though empirical studies generally conclude that the parimutuel betting markets are surprisingly efficient, it is also found that for horses...

A healthy financial system encourages the efficient allocation of capital and risk. The collapse of the house price bubble led to the financial crisis that started in 2007. There is a large empirical literature concerning the relation between asset price bubbles and financial crises. I evaluate...

The impact of exchange rate uncertainty on international trade has been discussed controversially in economic policy and theory for a long time. The paper surveys the theoretical investigations on this topic. The early modeis which analyse the influence of exchange rate uncertainty on trade,...

Farinelli and Tibiletti (F-T) ratio, a general risk-reward performance measurement ratio, is popular due to its simplicity and yet generality that both Omega ratio and upside potential ratio are its special cases. The F-T ratios are ratios of average gains to average losses with respect to a...

The framework of minimum-variance hedging rests on a highly restrictive foundation. The objective of variance minimization is only justifiable when variance coincides with expected squared forecast error. Nevertheless, the classical framework is routinely applied when the condition fails, giving...