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The Pricing of Derivatives on Assets with Quadratic Volatility
Zühlsdorff, Christian - University of Bonn, Germany - 2002
The basic model of financial economics is the Samuelson model of geometric Brownian motion because of the celebrated Black-Scholes formula for pricing the call option. The asset's volatility is a linear function of the asset value and the model garantees positive asset prices. In this paper it...
Persistent link: https://www.econbiz.de/10004968438
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Bilateral Trade, Openness and Asset Holdings
Li, Jing; Szimayer, Alexander - University of Bonn, Germany - 2010
We study the valuation of unit-linked life insurance contracts with surrender guarantees. Instead of solving an optimal stopping problem, we propose a more realistic approach accounting for policyholders’ rationality in exercising their surrender option. The valuation is conducted at the...
Persistent link: https://www.econbiz.de/10008764096
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Subprime borrowers, securitization and the transmission of business cycles
Grodecka, Anna - University of Bonn, Germany - 2013
One of the roots of the recent global financial crisis has been seen in the design of subprime mortgage contract leading to high sensitivity of such type of loans to house price changes. The market of subprime loans, especially in the last years preceding the crisis, has been highly financed by...
Persistent link: https://www.econbiz.de/10010735017
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The Effect of Secondary Markets on Equity-Linked Life Insurance with Surrender Guarantees
Hilpert, Christian; Li, Jing; Szimayer, Alexander - University of Bonn, Germany - 2011
We study the effect of secondary markets on equity-linked life insurance contracts with surrender guarantees. The policyholders are assumed to be boundedly rational in giving up their contracts, and a proportion of policyholders will access the secondary markets instead of surrendering the...
Persistent link: https://www.econbiz.de/10009651600
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How to Avoid a Hedging Bias
Dudenhausen, Antje - University of Bonn, Germany - 2002
In this paper, the effects of so-called model misspecification and the effects of dropping the assumption that continuous rebalancing is possible are examined. Strategies which are robust if applied continuously fail to be robust if applied in discrete time. Therefore, the hedging bias which...
Persistent link: https://www.econbiz.de/10004968333
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Hedging Basket Options by Using a Subset of Underlying Assets
Su, Xia - University of Bonn, Germany - 2006
This paper proposes two-step static hedging strategies for European basket options by using only plain-vanilla options …-vanilla options are obtained in the second step via optimization. The optimality criterion depends on the risk attitude of hedgers and … required by the super-hedging portfolio which is composed of plain-vanilla options on all underlying assets and hence is …
Persistent link: https://www.econbiz.de/10004968362
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An Examination of the Effects of Parameter Misspecification
Dudenhausen, Antje; Schlögl, Lutz - University of Bonn, Germany - 2002
It is well-known that Gaussian hedging strategies are robust in the sense that they always lead to a cost process of bounded variation and that a superhedge is possible if upper bounds on the volatility of the relevant processes are available, cf. El Karoui, Jeanblanc-Picque and Shreve (1998)...
Persistent link: https://www.econbiz.de/10004968401
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The Risk Management of Minimum Return Guarantees
Mahayni, Antje; Schlögl, Erik - University of Bonn, Germany - 2003
, is the risk management of the embedded options by a tractable and realistic hedging strategy. The long maturity of life …
Persistent link: https://www.econbiz.de/10004968403
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A Libor Market Model with Default Risk
Schönbucher, Philipp J. - University of Bonn, Germany - 2000
. For options on default swaps and caps on credit spreads, approximate solutions of high accuracy exist. This pricing … formula for options on default swaps is made exact in a modified modelling framework using an analogy to the swap measure, the …
Persistent link: https://www.econbiz.de/10004968433
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On an Alternative Approach to Pricing General Barrier Options
Suchanecki, Michael - University of Bonn, Germany - 2004
In this paper, an alternative approach to pricing barrier options is presented that relies on the use of the first … option prices. It turns out that this approach allows for pricing barrier options with more general payoffs and with general …
Persistent link: https://www.econbiz.de/10004968443