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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

Demand-Based Option Pricing

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

A Model of Corporate Liquidity

Anderson, Ronald W.; Carverhill, Andrew - C.E.P.R. Discussion Papers - 2005

We study a continuous time model of a levered firm with fixed assets generating a cash flow that fluctuates with business conditions. Since external finance is costly, the firm holds a liquid (cash) reserve to help survive periods of poor business conditions. Holding liquid assets inside the...

Persistent link: https://www.econbiz.de/10005123584

Unlocking Value: Equity Carve outs as Strategic Real Options

Perotti, Enrico C; Rossetto, Silvia - C.E.P.R. Discussion Papers - 2007

Equity carve outs, the partial listing of a corporate subsidiary, appear to be transitory arrangements, usually dissolved within a few years by either a complete sale or a buy back. Why do firms perform expensive listings just to reverse them thereafter? We interpret carve outs as strategic...

Persistent link: https://www.econbiz.de/10005124241

Too-Systemic-To-Fail: What Option Markets Imply About Sector-wide Government Guarantees

Kelly, Bryan; Lustig, Hanno; van Nieuwerburgh, Stijn - C.E.P.R. Discussion Papers - 2012

We examine the pricing of financial crash insurance during the 2007-2009 financial crisis in U.S. option markets. A large amount of aggregate tail risk is missing from the price of financial sector crash insurance during the financial crisis. The difference in costs of out-of-the-money put...

Persistent link: https://www.econbiz.de/10011083289

Carry

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

Any security’s expected return can be decomposed into its “carry” and its expected price appreciation, where carry is a model-free characteristic that can be observed in advance. While carry has been studied almost exclusively for currencies, we find that carry predicts returns both in the...

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

Volatility Risk Premia and Exchange Rate Predictability

Della Corte, Pasquale; Ramadorai, Tarun; Sarno, Lucio - C.E.P.R. Discussion Papers - 2013

We investigate the predictive information content in foreign exchange volatility risk premia for exchange rate returns. The volatility risk premium is the difference between realized volatility and a model-free measure of expected volatility that is derived from currency options, and reflects...

Persistent link: https://www.econbiz.de/10011084715

Option-Based Credit Spreads

Culp, Christopher L.; Nozawa, Yoshio; Veronesi, Pietro - C.E.P.R. Discussion Papers - 2014

Theoretically, corporate debt is economically equivalent to safe debt minus a put option on the firm’s assets. We empirically show that indeed portfolios of long Treasuries and short traded put options ("pseudo bonds") closely match the properties of traded corporate bonds. Pseudo bonds...

Persistent link: https://www.econbiz.de/10011145468