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Dynamic Hedging in Incomplete Markets: A Simple Solution

Basak, Suleyman; Chabakauri, Georgy - C.E.P.R. Discussion Papers - 2011

deviate unless she can pre-commit to follow them. We apply our results to the discrete hedging problem of derivatives when …Despite much work on hedging in incomplete markets, the literature still lacks tractable dynamic hedges in plausible … specialized to the Black-Scholes setting. We also generalize our results to richer settings to study dynamic hedging with Poisson …

Persistent link: https://www.econbiz.de/10009024486

Macro-Hedging for Commodity Exporters

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

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

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

Information Aggregation in a DSGE Model

Hassan, Tarek; Mertens, Thomas M. - C.E.P.R. Discussion Papers - 2014

We introduce the information microstructure of a canonical noisy rational expectations model (Hellwig, 1980) into the framework of a conventional real business cycle model. Each household receives a private signal about future productivity. In equilibrium, the stock price serves to aggregate and...

Persistent link: https://www.econbiz.de/10011083546

Incomplete-Market Equilibria Solved Recursively on an Event Tree

Dumas, Bernard J; Lyasoff, Andrew - C.E.P.R. Discussion Papers - 2009

We develop a method that allows one to compute incomplete-market equilibria routinely for Markovian equilibria (when they exist). The main difficulty to be overcome arises from the set of state variables. There are, of course, exogenous state variables driving the economy but, in an incomplete...

Persistent link: https://www.econbiz.de/10005124234

Dynamic Mean-Variance Asset Allocation

Basak, Suleyman; Chabakauri, Georgy - C.E.P.R. Discussion Papers - 2009

models. We also identify a probability measure that incorporates intertemporal hedging demands and facilitates much …-Jacobi-Bellman differential equation. A calibration exercise shows that the mean-variance hedging demands may comprise a significant fraction of …

Persistent link: https://www.econbiz.de/10005656376

The Impact of Changing Demographics and Pensions on The Demand for Housing and Financial Assets

Cerny, Ales; Miles, David K; Schmidt, Lubomir - C.E.P.R. Discussion Papers - 2005

Using a calibrated OLG model with several sources of uncertainty we find that the impact of ageing and of reform of social security upon the demand for housing and the level of owner occupation is substantial. The overall structure of household asset holdings – in particular the split between...

Persistent link: https://www.econbiz.de/10005662297

A Model of Credit Risk, Optimal Policies and Asset Prices

Basak, Suleyman; Shapiro, Alex - C.E.P.R. Discussion Papers - 2002

, borrowers' default policies render binary options useful instruments for lenders in hedging the credit-risk component of their …

Persistent link: https://www.econbiz.de/10005788927

Asset Pricing under Rational Learning about Rare Disasters

Koulovatianos, Christos; Wieland, Volker - C.E.P.R. Discussion Papers - 2011

This paper proposes a new approach for modeling investor fear after rare disasters. The key element is to take into account that investors' information about fundamentals driving rare downward jumps in the dividend process is not perfect. Bayesian learning implies that beliefs about the...

Persistent link: https://www.econbiz.de/10009201120

Strategic Asset Allocation in Money Management

Basak, Suleyman; Makarov, Dmitry - C.E.P.R. Discussion Papers - 2011

Money managers behave strategically when competing for fund flows within relatively small groups. We study strategic interaction between two risk-averse managers in continuous time, characterizing analytically their unique equilibrium dynamic investments. Driven by chasing and contrarian...

Persistent link: https://www.econbiz.de/10009144728

Carry

Koijen, Ralph; Moskowitz, Tobias J; Pedersen, Lasse Heje; … - C.E.P.R. Discussion Papers - 2013

including global equities, global bonds, commodities, US Treasuries, credit, and options. This predictability rejects a …

Persistent link: https://www.econbiz.de/10011083673