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We investigate the effect of including variance derivatives as calibration and hedging instruments for pricing and … hedging exotic structures. This is studied empirically using market data for SPX and VIX derivatives applied in a stochastic …
Persistent link: https://www.econbiz.de/10013113731
This paper solves the mean-variance hedging problem in Heston's model with a stochastic opportunity set moving … derive formulas for the hedging strategy and the hedging error …
Persistent link: https://www.econbiz.de/10012705869
Classical quantitative finance models such as the Geometric Brownian Motion or its later extensions such as local or stochastic volatility models do not make sense when seen from a physics-based perspective, as they are all equivalent to a negative mass oscillator with a noise. This paper...
Persistent link: https://www.econbiz.de/10012826182
Robert C. Merton is the School of Management Distinguished Professor of Finance at Massachusetts Institute of Technology, and the John and Natty McArthur University Professor Emeritus at Harvard University. Merton received the Alfred Nobel Memorial Prize in Economic Sciences in 1997 for a new...
Persistent link: https://www.econbiz.de/10014348991
focus on pricing, hedging, and allocation of prices or hedging costs to desks on an individual trade basis. We show how to …
Persistent link: https://www.econbiz.de/10013040052
We provide evidence that speculative capital of hedge funds is a key determinant for the profitability of optimal carry and momentum strategies in futures markets across asset classes. We construct optimal carry and momentum portfolios from the perspective of a utility maximizing risk averse...
Persistent link: https://www.econbiz.de/10013085038
their clients so that they can avoid the over- as well as under-hedging. In this work, the prices of securities, the … stochastic filtering technique. We utilize the inferred information to provide the optimal hedging strategy based on the mean … useful for manufactures and energy firms to install an efficient overlay of dynamic hedging by financial derivatives to …
Persistent link: https://www.econbiz.de/10013061060
minimizes the cost of hedging a path dependent contingent claim with given expected success ratio, in a discrete-time, semi …-static market of stocks and options. Based on duality results which link quantile hedging to a randomized composite hypothesis test … measure, which guarantees the existence of the optimal hedging strategy and enables numerical calculation of the quantile …
Persistent link: https://www.econbiz.de/10012972859
We develop scenario-based stochastic programming models for hedging the risks of international portfolios using options … single-stage model with currency options for selective hedging of FX risks, while market risk is addressed only through … risk management. Simultaneous hedging of market and FX risks using stock and currency options yields the best ex …
Persistent link: https://www.econbiz.de/10012924570
This paper examines the performance of a naïve equally weighted buy-and-hold portfolio and optimization-based commodity futures portfolios for various lookback and holding periods using data from January 1986 to December 2018. The application of Monte Carlo simulation-based mean-variance and...
Persistent link: https://www.econbiz.de/10012291900