Download or read book Hedging and Pricing with L2 Convex Risk Measures in Incomplete Markets written by Antoine Toussaint and published by . This book was released on 2007 with total page 222 pages. Available in PDF, EPUB and Kindle. Book excerpt: This framework is more suitable for optimal hedging with L 2 valued financial markets. A dual representation is given for this minimum risk when the risk measure is real-valued and we give an example of computation in a stochastic volatility model with the shortfall risk. In the general case when the risk may become infinite, we introduce constrained hedging and prove that the minimum risk is still an L2 convex risk measure and the existence of an optimal hedge.
Download or read book Pricing and Hedging in Incomplete Markets with Coherent Risk written by Alexander S. Cherny and published by . This book was released on 2006 with total page 21 pages. Available in PDF, EPUB and Kindle. Book excerpt: We propose a pricing technique based on coherent risk measures, which enables one to get finer price intervals than in the No Good Deals pricing. The main idea consists in splitting a liability into several parts and selling these parts to different agents. The technique is closely connected with the convolution of coherent risk measures and equilibrium considerations.Furthermore, we propose a way to apply the above technique to the coherent estimation of the Greeks.
Download or read book Hedging and Pricing in Imperfect Markets Under Non Convexity written by Hirbod Assa and published by . This book was released on 2015 with total page 33 pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper proposes a robust approach to hedging and pricing in the presence of market imperfections such as market incompleteness and frictions. The generality of this framework allows us to conduct an in-depth theoretical analysis of hedging strategies for a wide family of risk measures and pricing rules, which are possibly non-convex. The practical implications of our proposed theoretical approach are illustrated with an application on hedging economic risk.
Download or read book Hedging and Pricing in Incomplete Markets written by Hirbod Assa and published by . This book was released on 2014 with total page 111 pages. Available in PDF, EPUB and Kindle. Book excerpt: This thesis consists of three essays in financial econometrics. In the first part of the thesis, motivated by different applications of hedging methods in the literature, we propose a general theoretical framework for hedging and pricing. First, we review briefly different strands of literature on hedging which have been developed in various fields such as finance, economics, operations research and mathematics, and then try to come up with a tractable way for hedging and pricing in this paper. By introducing different market principles, we study conditions under which the hedging problem has a solution and pricing is possible. We will conduct an in-depth theoretical analysis of hedging strategies with shortfall risks as well as the spectral risk measures, in particular those associated with Choquet expected utility. We show that asymmetric information results in incorrect risk assessment and pricing. In the second part of the thesis, we will apply our results in the first part to construct an economic risk hedge. We also introduce a general method to estimate the stochastic discount factors associated with different risk measures and different financial models. The third part of the thesis modifies the speculative storage model by embedding staggered price features into the structural model of Deaton and Laroque (1996). In an attempt to replicate the stylized facts of observed commodity price dynamics, we add an additional source of intertemporal linkage to Deaton and Laroque (1996), namely speculation in intermediate-good inventories. The introduction of this type of friction into the model is motivated by its ability to increase price stickiness which gives rise to an increased persistence in the first and higher conditional moments of commodity prices. By incorporating intermediate risk neutral speculators and a final bundler with a staggered pricing rule in the spirit of Calvo (1983) into the storage model, we are able to capture a high degree of serial correlation and conditional heteroskedasticity, which are observed in actual data. The structural parameters of both Deaton and Laroque (1996) and our modified models are estimated using actual prices for 8 agricultural commodities. Simulated data are then employed to assess the effects of our staggered price approach on the time-series properties of commodity prices. Our results lend empirical support to the possibility of staggered prices.
Download or read book Risk Measures and Optimal Strategies for Discrete Hedging written by Maria-Cristina Patron and published by . This book was released on 2003 with total page 346 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Download or read book Hedging Market Exposures written by Oleg V. Bychuk and published by John Wiley & Sons. This book was released on 2011-06-28 with total page 322 pages. Available in PDF, EPUB and Kindle. Book excerpt: Identify and understand the risks facing your portfolio, how to quantify them, and the best tools to hedge them This book scrutinizes the various risks confronting a portfolio, equips the reader with the tools necessary to identify and understand these risks, and discusses the best ways to hedge them. The book does not require a specialized mathematical foundation, and so will appeal to both the generalist and specialist alike. For the generalist, who may not have a deep knowledge of mathematics, the book illustrates, through the copious use of examples, how to identify risks that can sometimes be hidden, and provides practical examples of quantifying and hedging exposures. For the specialist, the authors provide a detailed discussion of the mathematical foundations of risk management, and draw on their experience of hedging complex multi-asset class portfolios, providing practical advice and insights. Provides a clear description of the risks faced by managers with equity, fixed income, commodity, credit and foreign exchange exposures Elaborates methods of quantifying these risks Discusses the various tools available for hedging, and how to choose optimal hedging instruments Illuminates hidden risks such as counterparty, operational, human behavior and model risks, and expounds the importance and instability of model assumptions, such as market correlations, and their attendant dangers Explains in clear yet effective terms the language of quantitative finance and enables a non-quantitative investment professional to communicate effectively with professional risk managers, "quants", clients and others Providing thorough coverage of asset modeling, hedging principles, hedging instruments, and practical portfolio management, Hedging Market Exposures helps portfolio managers, bankers, transactors and finance and accounting executives understand the risks their business faces and the ways to quantify and control them.
Download or read book Pricing and Hedging Derivative Securities in Incomplete Markets written by Dimitris Bertsimas and published by . This book was released on 1997 with total page 80 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Download or read book Pricing Hedging and Optimally Designing Derivatives via Minimization of Risk Measures written by Pauline M. Barrieu and published by . This book was released on 2009 with total page 71 pages. Available in PDF, EPUB and Kindle. Book excerpt: The question of pricing and hedging a given contingent claim has a unique solution in a complete market framework. When some incompleteness is introduced, the problem becomes however more difficult. Several approaches have been adopted in the literature to provide a satisfactory answer to this problem, for a particular choice criterion. In this paper, in order to price and hedge a non-tradable contingent claim, we first start with a (standard) utility maximization problem and end up with an equivalent risk measure minimization.This hedging problem can be seen as a particular case of a more general situation of risk transfer between different agents, one of them consisting of the financial market. In order to provide constructive answers to this general optimal risk transfer problem, both static and dynamic approaches are considered. When considering a dynamic framework, our main purpose is to find a trade-off between static and very abstract risk measures as we are more interested in tractability issues and interpretations of the dynamic risk measures we obtain rather than the ultimate general results. Therefore, after introducing a general axiomaticapproach to dynamic risk measures, we relate the dynamic version of convex risk measures to BSDEs.
Download or read book Equal Risk Pricing Under Convex Trading Constraints written by Ivan Guo and published by . This book was released on 2015 with total page 21 pages. Available in PDF, EPUB and Kindle. Book excerpt: In an incomplete market model where convex trading constraints are imposed upon the underlying assets, it is no longer possible to obtain unique arbitrage-free prices for derivatives using standard replication arguments. Most existing derivative pricing approaches involve the selection of a suitable martingale measure or the optimisation of utility functions as well as risk measures from the perspective of a single trader.We propose a new and effective derivative pricing method, referred to as the equal risk pricing approach, for markets with convex trading constraints. The approach analyses the risk exposure of both the buyer and seller of the derivative, and seeks an equal risk price which evenly distributes the expected loss for both parties under optimal hedging. The existence and uniqueness of the equal risk price are established for both European and American options. Furthermore, if the trading constraints are removed, the equal risk price agrees with the standard arbitrage-free price.Finally, the equal risk pricing approach is applied to a constrained Black-Scholes market model where short-selling is banned. In particular, simple pricing formulas are derived for European calls, European puts and American puts.
Download or read book Seminar on Stochastic Analysis Random Fields and Applications VI written by Robert Dalang and published by Springer Science & Business Media. This book was released on 2011-03-16 with total page 487 pages. Available in PDF, EPUB and Kindle. Book excerpt: This volume contains refereed research or review papers presented at the 6th Seminar on Stochastic Processes, Random Fields and Applications, which took place at the Centro Stefano Franscini (Monte Verità) in Ascona, Switzerland, in May 2008. The seminar focused mainly on stochastic partial differential equations, especially large deviations and control problems, on infinite dimensional analysis, particle systems and financial engineering, especially energy markets and climate models. The book will be a valuable resource for researchers in stochastic analysis and professionals interested in stochastic methods in finance.
Download or read book The Cost of Risk and Option Hedging in Incomplete Markets written by Vera Minina and published by . This book was released on 2008 with total page 110 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Download or read book Pricing and Hedging Options in Incomplete Markets written by Thierry Chauveau and published by . This book was released on 2004 with total page 31 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Download or read book Three Essays on Pricing and Hedging in Incomplete Markets written by Dan Chen and published by . This book was released on 2011 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: The thesis focuses on valuation and hedging problems when the market is incomplete. The first essay considers the quadratic hedging strategy. We propose a generalized quadratic hedging strategy which can balance a short-term risk (additional cost) with a long-term risk (hedging errors). The traditional quadratic hedging strategies, i.e. self-financing strategy and risk-minimization strategy, can be seen as special cases of the generalized quadratic hedging strategy. This is applied to the insurance derivatives market. The second essay compares parametric and nonparametric measure-changing techniques. The essay discusses three pricing approaches: pricing via Esscher measure, via calibration and via nonparametric risk-neutral density; and empirically compares the performance of the three approaches in the metal futures markets. The last essay establishes the concept of stochastic volatility of volatility and proposes several estimation methods.
Download or read book Convex Hedging in Incomplete Markets written by Birgit Rudloff and published by . This book was released on 2005 with total page 17 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Download or read book Hedging in Incomplete Markets and Testing Compound Hypotheses Via Convex Duality written by Birgit Rudloff and published by . This book was released on 2006 with total page 100 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Download or read book Market Risk Analysis Pricing Hedging and Trading Financial Instruments written by Carol Alexander and published by Wiley. This book was released on 2008-06-09 with total page 0 pages. Available in PDF, EPUB and Kindle. Book excerpt: Written by leading market risk academic, Professor Carol Alexander, Pricing, Hedging and Trading Financial Instruments forms part three of the Market Risk Analysis four volume set. This book is an in-depth, practical and accessible guide to the models that are used for pricing and the strategies that are used for hedging financial instruments, and to the markets in which they trade. It provides a comprehensive, rigorous and accessible introduction to bonds, swaps, futures and forwards and options, including variance swaps, volatility indices and their futures and options, to stochastic volatility models and to modelling the implied and local volatility surfaces. All together, the Market Risk Analysis four volume set illustrates virtually every concept or formula with a practical, numerical example or a longer, empirical case study. Across all four volumes there are approximately 300 numerical and empirical examples, 400 graphs and figures and 30 case studies many of which are contained in interactive Excel spreadsheets available from the the accompanying CD-ROM . Empirical examples and case studies specific to this volume include: Duration-Convexity approximation to bond portfolios, and portfolio immunization; Pricing floaters and vanilla, basis and variance swaps; Coupon stripping and yield curve fitting; Proxy hedging, and hedging international securities and energy futures portfolios; Pricing models for European exotics, including barriers, Asians, look-backs, choosers, capped, contingent, power, quanto, compo, exchange, ‘best-of’ and spread options; Libor model calibration; Dynamic models for implied volatility based on principal component analysis; Calibration of stochastic volatility models (Matlab code); Simulations from stochastic volatility and jump models; Duration, PV01 and volatility invariant cash flow mappings; Delta-gamma-theta-vega mappings for options portfolios; Volatility beta mapping to volatility indices.
Download or read book Pricing and Hedging in Incomplete Markets with Model Uncertainty written by Anne Balter and published by . This book was released on 2018 with total page 31 pages. Available in PDF, EPUB and Kindle. Book excerpt: We search for a trading strategy and the associated robust price of unhedgeable assets in incomplete markets under the acknowledgement of model uncertainty. Our set-up is that we postulate an agent who wants to maximise the expected surplus by choosing an optimal investment strategy. Furthermore, we assume that the agent is concerned about model misspecification. This robust optimal control problem under model uncertainty leads to (i) risk-neutral pricing for the traded risky assets, and (ii) adjusting the drift of the nontraded risk drivers in a conservative direction. The direction depends on the agent's long or short position, and the adjustment that ensures a robust strategy leads to what is known as "actuarial" or "prudential" pricing. Our results extend to a multivariate setting. We prove existence and uniqueness of the robust price in an incomplete market via the link between the semilinear partial differential equation and backward stochastic differential equations.
