This paper proposes a risk measure, based on first-passage probability, which reflects intra-horizon risk in jump … models with finite or infinite jump activity. Our empirical investigation shows, first, that the proposed risk measure … consistently exceeds the benchmark Value-at-Risk (VaR). Second, jump risk tends to amplify intra-horizon risk. Third, we find large …

The calculation of the capital charge for CVA risk, as required by the Basel Committee on Banking Supervision, is …, the implied adjustments in capital charges could be reduced by hedging a credit derivative portfolio with a contrary … CDSs and CDS indices, and we also evaluate the level of basis risk still remaining under the hedge. We address several …

the number of distinct dealers providing quotes. We find that liquidity is concentrated among large obligors and those … how liquidity provision responds to transaction demand and how liquidity is priced into the CDS premium. …

This work examines how the option and stock markets are related when using the threshold vector error correction model … consistent with the following notions. First, the equilibrium re-establishment process depends primarily on the option market and … is triggered only when price deviations exceed a critical threshold. Second, arbitrage behaviors between the option and …

pricing error increases with index returns. The unrestricted model has significantly less option pricing bias for calls than … the restricted model. The option pricing error for calls in the restricted model has much larger negative bias near the … puts. Finally, the option pricing errors are significantly affected by moneyness and time to expiration for all cases; this …

significant outperformance. In the months that follow large jumps, strategies exposing to long volatility and extreme risk tend to …

profile of a short option strangle exposes the contract seller to a potential for unlimited losses. Our evidence on maximum … positions. This payoff profile has given rise to the metaphor of selling option contracts as the equivalent of “picking up … nickels in front of a steam roller.” The goal of our paper is to analyze the full return characteristics of option strangles …

The financial crisis has raised concerns throughout the industry on the possibility that hedging credit valuation … products break down. So, we provide an estimation of the basis risk that arises when hedging credit portfolios with different … credit indices, to answer the following questions: Is there enough diversification of risk in a global credit portfolio to …