Banks worldwide use data warehousing solutions for performance measurement, profitability analysis, for risk management, historical analysis, for managing compliance requirements, executive dashboards, regulatory reporting and customer relationship management. Deployment of business intelligence...

Attempted dynamic replication based valuation of equity options is analyzed using the Optimal Hedge Monte-Carlo (OHMC) method. Detailed here are (1) the option hedging strategy and its costs; (2) irreducible hedging errors associated with realistically fat-tailed & asymmetric return...

This paper compares two approaches to options: (1) Risk-Aware Approach, and (2) Risk-Neutral Approach. The risk-aware approach requires a probabilistic specification of the underlying’s returns, addressing higher than second moments, as hedging errors are singularly dependent on the excess...

Equity returns are addressed by a new General Auto-Regressive Asset Model (GARAM). In this model, two stochastic processes are employed to represent the return magnitude and return sign. Empirical auto-covariance and cross-covariance functions of the return magnitude and return sign are key...

This paper analyzes the effectiveness of hedging a defaultable bond, that may not be at par, with a credit default swap (CDS) by quantifying the variance of the hedging errors and determining the optimal hedge ratio. The static hedging framework uses bond recovery and time to default, which are...

Hedging and valuing multi-asset options are analyzed using the Optimal Hedge Monte-Carlo method. The average cost of hedging and the residual risks are related to the stochastic description of the underlying assets, their dependence structure, and to the option contract details. A long position...

Digital default swaps are different from conventional (floating recovery) swaps because they transfer different types of risk. Conventional swaps transfer default loss risk, while digitals transfer default event risk. The implicit recovery risk remains unpriced in a hedged digital default swap....