Similar Search Results

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

Disasters implied by equity index options

Backus, David; Chernov, Mikhail; Martin, Ian - C.E.P.R. Discussion Papers - 2009

We use prices of equity index options to quantify the impact of extreme events on asset returns. We define extreme events as departures from normality of the log of the pricing kernel and summarize their impact with high-order cumulants: skewness, kurtosis, and so on. We show that high-order...

Persistent link: https://www.econbiz.de/10004976797

Sources of Risk in Currency Returns

Chernov, Mikhail; Graveline, Jeremy; Zviadadze, Irina - C.E.P.R. Discussion Papers - 2012

We quantify the sources of risk in currency returns as a first step toward understanding the returns reported for the carry trade. To do this, we develop and estimate an empirical model of exchange rate dynamics using daily data for four currencies relative to the US dollar: the Australian...

Persistent link: https://www.econbiz.de/10011083487

Option Pricing and Foreign Investment under Political Risk

Cherian, Joseph A; Perotti, Enrico C - C.E.P.R. Discussion Papers - 1999

The paper analyzes foreign investment and asset prices in a context of uncertainty over future government policy. The model endogenizes the process of learning by foreign investors facing a potentially opportunistic government, which chooses strategically the timing of a policy reversal in order...

Persistent link: https://www.econbiz.de/10005656360

Loss Functions in Option Valuation: A Framework for Model Selection

Bams, Dennis; Lehnert, Thorsten; Wolff, Christian C - C.E.P.R. Discussion Papers - 2005

In this paper, we investigate the importance of different loss functions when estimating and evaluating option pricing models. Our analysis shows that it is important to take into account parameter uncertainty, since this leads to uncertainty in the predicted option price. We illustrate the...

Persistent link: https://www.econbiz.de/10005791774

Bond Return Predictability: Economic Value and Links to the Macroeconomy

Gargano, Antonio; Pettenuzzo, Davide; Timmermann, Allan G - C.E.P.R. Discussion Papers - 2014

Studies of bond return predictability find a puzzling disparity between strong statistical evidence of return predictability and the failure to convert return forecasts into economic gains. We show that resolving this puzzle requires accounting for important features of bond return models such...

Persistent link: https://www.econbiz.de/10011083511

Dynamic Consumption and Portfolio Choice with Stochastic Volatility in Incomplete Markets

Chacko, George; Viceira, Luis M - C.E.P.R. Discussion Papers - 2005

substitution of consumption, and approximate otherwise. The optimal portfolio demand for stocks includes an intertemporal hedging … stock return volatility does not appear to be variable and persistent enough to generate large intertemporal hedging demands. …

Persistent link: https://www.econbiz.de/10005661568

Arbitrage, Hedging and Financial Innovation

Davidson, Malcolm - C.E.P.R. Discussion Papers - 1996

in a standard framework in which uninformed traders with hedging needs interact with risk-averse informed traders in … hedging and speculative demands: risk-averse arbitrageurs can hedge in the new market to lower the risk of speculative … traders with pure hedging motives in that market to withdraw, so reducing liquidity in the old market. The general point …

Persistent link: https://www.econbiz.de/10005504789

Asset Return Predictability in a Heterogeneous Agent Equilibrium Model

Carlson, Murray; Chapman, David A.; Kaniel, Ron; Yan, Hong - C.E.P.R. Discussion Papers - 2015

We use a general equilibrium model as a laboratory for generating predictable excess returns and for assessing the properties of the estimated consumption/portfolio rules, under both the empirical and the true dynamics of excess returns. The advantage of this approach, relative to the existing...

Persistent link: https://www.econbiz.de/10011145396

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