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Monetary policy has pursued the concept of inflation targeting. This has been implemented in many countries. Here interest rates are supposed to respond to an inflation gap and output gap. Yet, recently monetary policy, in particular in the US after the subprime and the credit crises, the...
Persistent link: https://www.econbiz.de/10014203097
Investors can construct commodity benchmarks better aligned with their investment objectives. This is important because common “plain-vanilla” benchmarks, constructed to mimic relative production activity, may be inconsistent with a CIO’s objectives.CIOs can use the Real Asset Sensitivity...
Persistent link: https://www.econbiz.de/10013250624
No arbitrage for two price economies with no locally risk free asset implies that suitably deflated prices are nonlinear martingales. However, both the deflating process and the measure change depend on the process being deflated. Further assumptions allow the nonlinear martingales in discrete...
Persistent link: https://www.econbiz.de/10012998891
Allowing for correlated squared returns across two consecutive periods, portfolio theory for two periods is developed. This correlation makes it necessary to work with non-Gaussian models. The two period conic portfolio problem is formulated and implemented. This development leads to a mean ask...
Persistent link: https://www.econbiz.de/10013004140
Seemingly infallible arbitrage strategies can fail. When they do, they can take the markets down with them. The near collapse of Long-Term Capital Management parallels the experience of portfolio insurance in 1987
Persistent link: https://www.econbiz.de/10013006371
Abstract. This paper describes how an efficient and exact Monte-Carlo simulation of the Hull-White model could be performed. For that purpose the joint conditional distribution of the short interest rate and the discount factor is derived. The proposed approach can be straightforward extended to...
Persistent link: https://www.econbiz.de/10013007339
Movements in prices depend both on innovations to cashflows and changes in discount rates, which can be modelled as fluctuations in the cross-sectional distribution of wealth across an unchanging set of investment objectives. This paper explores the risk that arises when investors do not have...
Persistent link: https://www.econbiz.de/10012963966
Prices in financial markets must move continuously and surprisingly to support their levels with returns. Consequently the function announcing the arrival rate of moves of different sizes becomes the equilibrium object, necessitating a reformulation of risk reward concepts in these terms. It is...
Persistent link: https://www.econbiz.de/10012967217
This article develops a Hedging Algebraic Model (HAM) for equity index portfolios with stock index futures as an alternative to econometric models (OLS, ECM, and GARCH) and assesses the efficacy of the model when applied to the IBEX 35 for the period 2007-2015. The model is initially formulated...
Persistent link: https://www.econbiz.de/10012967536
We show that idiosyncratic jumps are a key determinant of mean stock returns from both an ex post and ex ante perspective. Ex post, the entire annual average return of a typical stock accrues on the four days on which its stock price jumps. Ex ante, idiosyncratic jump risk earns a premium: a...
Persistent link: https://www.econbiz.de/10012967984