This paper presents an empirical analysis investigating the relationship between the futures trading activities of speculators and hedgers and the potential movements of major spot exchange rates. A set of trader position measures are employed as regression predictors, including the level and...

Risk management is crucial for optimal portfolio management. One of the fastest growing areas in empirical finance is the expansion of financial deriva-tives. The purpose of this special issue on “Risk Management and Financial Deriva-tives” is to highlight some areas in which novel...

We show how distributions can be reduced to low-dimensional scenario trees. Applied to intertemporal distributions, the scenarios and their probabilities become time-varying factors. From S&P 500 options, two or three time-varying scenarios suffice to forecast returns, implied variance or...

Investment behaviour, techniques and choices have evolved in the options markets since the launch of options trading in 1973. Today, we are entering the field of Big Data and the explosion of information, which has become the main feature of science, impacts investors' decisions and their...

Equity basket correlation is an important risk factor. It characterizes the strength of linear dependence between assets and thus measures the degree of portfolio diversification. It can be estimated both under the physical measure from return series, and under the risk neutral measure from...

This paper empirically examines price formation in the European Union Emissions Trading Scheme (EU ETS). Our analysis shows that unexpected allocations of European Union Allowances (EUAs) lead to pronounced price reactions of the expected signs. Moreover, we find evidence that the adjustment of...

This article focuses on some of the operational aspects of winding down a bank’s trading book portfolio and discusses the hidden exit costs that can sometimes exist. The article provides a deep dive on valuation principles and exit strategies currently considered by industry practitioners when...

Initial Margin (IM) has significant impact on counterparty exposure, pricing, capital and limits. This makes modelling of future IM a critical part of counterparty risk management and pricing. All current approaches, which we review in this paper, consider IM as Value-at-Risk (VaR) and therefore...

In 2003, the Chicago Board Options Exchange (CBOE) made two key enhancements to the volatility index (VIX) methodology based on Samp;P options. The new VIX methodology seems to be based on a complicated formula to calculate expected volatility. In this paper, with the use of Thailand's SET50...

This paper empirically examines price formation in the European Union Emissions Trading Scheme (EU ETS). Our analysis shows that unexpected allocations of European Union Allowances (EUAs) lead to pronounced price reactions of the expected signs. Moreover, we find evidence that the adjustment of...