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Garleanu, Nicolae Bogdan; Pedersen, Lasse Heje; … - C.E.P.R. Discussion Papers - 2005

We model the demand-pressure effect on prices when options cannot be perfectly hedged. The model shows that demand pressure in one option contract increases its price by an amount proportional to the variance of the unhedgeable part of the option. Similarly, the demand pressure increases the...

Persistent link: https://www.econbiz.de/10005067592

Limits to Arbitrage and Hedging: Evidence from Commodity Markets

Acharya, Viral V; Lochstoer, Lars; Ramadorai, Tarun - C.E.P.R. Discussion Papers - 2009

futures contracts. Their hedging demand is met by financial intermediaries who act as speculators, but are constrained in risk …-taking. Increases (decreases) in producers’ hedging demand (the risk-bearing capacity of speculators) increase the costs of hedging … 1980-2006, we show that producers’ hedging demand - proxied by their default risk - forecasts spot prices, futures prices …

Persistent link: https://www.econbiz.de/10005016244

Corporate Bond Valuation and Hedging with Stochastic Interest Rates and Endogenous Bankruptcy

Acharya, Viral V; Carpenter, Jennifer - C.E.P.R. Discussion Papers - 2002

stochastic. It then uses the results to explain the dynamics of hedging. Bankruptcy rules are important determinants of corporate … produce the same prices, they can have very different hedging implications. We show that empirical results on the relation …

Persistent link: https://www.econbiz.de/10005123555

Hedging and Vertical Integration in Electricity Markets

Aïd, René; Chemla, Gilles; Porchet, Arnaud; Touzi, Nizar - C.E.P.R. Discussion Papers - 2011

forward hedging and vertical integration are two separate mechanisms for demand and spot price risk diversification that both … forward hedging when retailers are highly risk averse. We illustrate our analysis with data from the French electricity market. …

Persistent link: https://www.econbiz.de/10008925710

Macro-Hedging for Commodity Exporters

Borensztein, Eduardo; Jeanne, Olivier; Sandri, Damiano - C.E.P.R. Discussion Papers - 2009

This paper uses a dynamic optimization model to estimate the welfare gains of hedging against commodity price risk for … commodity-exporting countries. We show that the introduction of hedging instruments such as futures and options enhances …

Persistent link: https://www.econbiz.de/10008577805

Late Informed Betting and the Favourite-Longshot Bias

Ottaviani, Marco; Sørensen, Peter Norman - C.E.P.R. Discussion Papers - 2003

According to the favorite-longshot bias observed in pari-mutuel betting, the final distribution of bets overestimates the winning chance of longshots. This Paper proposes an explanation of this bias based on late betting by small privately informed bettors. These bettors have an incentive to...

Persistent link: https://www.econbiz.de/10005504377

Excessive continuation and Dynamic Agency Costs of Debt

Décamps, Jean Paul; Faure-Grimaud, Antoine - C.E.P.R. Discussion Papers - 2000

This paper analyses the incentives of the equityholders of a leveraged company to shut it down in a continuous time, stochastic environment. Keeping the firm as an ongoing concern has an option value but equity and debt holders value it differently. Equity holders' decisions exhibit excessive...

Persistent link: https://www.econbiz.de/10005504424

New Techniques to Extract Market Expectations from Financial Instruments

Söderlind, Paul; Svensson, Lars E O - C.E.P.R. Discussion Papers - 1997

This paper is a selective survey of new or recent methods to extract information about market expectations from asset prices for monetary policy purposes. Traditionally, interest rates and forward exchange rates have been used to extract expected means of future interest rates, exchange rates...

Persistent link: https://www.econbiz.de/10005504605

Direct Estimation of the Risk Neutral Factor Dynamics of Affine Term Structure Models

Bams, Dennis; Schotman, Peter C - C.E.P.R. Discussion Papers - 1998

This paper proposes a panel data framework for tests of affine models of the term structure of interest rates which cover equilibrium (or endogenous) models as well as extended (or exogenous, evolutionary) models. The econometric model pools yield curve data for different moments in time. Since...

Persistent link: https://www.econbiz.de/10005498193

Implied Volatility Functions: Empirical Tests

Dumas, Bernard J; Fleming, Jeff; Whaley, Robert E - C.E.P.R. Discussion Papers - 1996

and hedging performance of the DVF option valuation model. …

Persistent link: https://www.econbiz.de/10005498195