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Author : XIAO BAI. ZHU
Publisher :
ISBN 13 :
Total Pages : pages
Book Rating : 4.:/5 (13 download)
Download or read book Performance of Dynamic Hedging Strategies for Cash Balance Pension Plans written by XIAO BAI. ZHU and published by . This book was released on 2015 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt:
Author : Aleš Černý
Publisher :
ISBN 13 :
Total Pages : 27 pages
Book Rating : 4.:/5 (129 download)
Download or read book Performance of Dynamic Hedging Strategies written by Aleš Černý and published by . This book was released on 2020 with total page 27 pages. Available in PDF, EPUB and Kindle. Book excerpt: Suppose an investment bank consists of two desks trading in equity and equity options, and it operates in a market where equity returns are leptokurtic. It is well known (Schweizer 1994) that the optimal mean-variance trading strategy for the bank as a whole is path-dependent. This paper examines quasi-optimal strategies that preserve the path-independent nature of Black - Scholes option hedging coefficients without excessively compromising bank's overall efficiency. More generally, I investigate the issue of risk-adjusted performance measurement, attribution and investment-hedging separation between two desks trading in derivative and the underlying asset, respectively.lt;brgt;lt;brgt;It is shown that both the optimal and quasi-optimal hedging strategies require close coordination between the equity and option desks, insofar as the optimal volume of option sales depends crucially on the relative performance of the two desks. Closed-form expressions for the Sharpe ratio and Certainty Equivalent Growth Rate as well as numerical results for a model calibrated to historical FTSE 100 equity index returns are given.
Author : Nassim Nicholas Taleb
Publisher : John Wiley & Sons
ISBN 13 : 9780471152804
Total Pages : 536 pages
Book Rating : 4.1/5 (528 download)
Download or read book Dynamic Hedging written by Nassim Nicholas Taleb and published by John Wiley & Sons. This book was released on 1997-01-14 with total page 536 pages. Available in PDF, EPUB and Kindle. Book excerpt: Destined to become a market classic, Dynamic Hedging is the only practical reference in exotic options hedgingand arbitrage for professional traders and money managers Watch the professionals. From central banks to brokerages to multinationals, institutional investors are flocking to a new generation of exotic and complex options contracts and derivatives. But the promise of ever larger profits also creates the potential for catastrophic trading losses. Now more than ever, the key to trading derivatives lies in implementing preventive risk management techniques that plan for and avoid these appalling downturns. Unlike other books that offer risk management for corporate treasurers, Dynamic Hedging targets the real-world needs of professional traders and money managers. Written by a leading options trader and derivatives risk advisor to global banks and exchanges, this book provides a practical, real-world methodology for monitoring and managing all the risks associated with portfolio management. Nassim Nicholas Taleb is the founder of Empirica Capital LLC, a hedge fund operator, and a fellow at the Courant Institute of Mathematical Sciences of New York University. He has held a variety of senior derivative trading positions in New York and London and worked as an independent floor trader in Chicago. Dr. Taleb was inducted in February 2001 in the Derivatives Strategy Hall of Fame. He received an MBA from the Wharton School and a Ph.D. from University Paris-Dauphine.
Author : Donald Luskin
Publisher : Wiley
ISBN 13 : 9780471858492
Total Pages : 322 pages
Book Rating : 4.8/5 (584 download)
Download or read book Portfolio Insurance written by Donald Luskin and published by Wiley. This book was released on 1988-03-16 with total page 322 pages. Available in PDF, EPUB and Kindle. Book excerpt: Portfolio insurance has become a craze among institutional investors: over the past ten years, the value of assets managed under this strategy has grown from zero to more than -50 billion. This guide offers complete coverage and practical advice on every aspect of the subject. It clearly defines the characteristics of portfolio insurance, providing background on its history and the theory of hedging, going on to describe how to implement a hedging strategy, how to fit portfolio insurance into long-term financial planning, using index and financial futures and options in hedging, and techniques for measuring performance. Also included is a discussion of how portfolio insurance operates in the international arena.
Author : Su Dai
Publisher : GRIN Verlag
ISBN 13 : 3656539219
Total Pages : 80 pages
Book Rating : 4.6/5 (565 download)
Download or read book Hedging with Commodity Futures written by Su Dai and published by GRIN Verlag. This book was released on 2013-11-12 with total page 80 pages. Available in PDF, EPUB and Kindle. Book excerpt: Master's Thesis from the year 2013 in the subject Business economics - Banking, Stock Exchanges, Insurance, Accounting, grade: 1,7, University of Mannheim, language: English, abstract: The commodity futures contract is an agreement to deliver a specific amount of commodity at a future time . There are usually choices of deliverable grades, delivery locations and delivery dates. Hedging belongs to one of the fundamental functions of futures market. Futures can be used to help producers and buyers protect themselves from price risk arising from many factors. For instance, in crude oil commodities, price risk occurs due to disrupted oil supply as a consequence of political issues, increasing of demand in emerging markets, turnaround in energy policy from the fossil fuel to the solar and efficient energy, etc. By hedging with futures, producers and users can set the prices they will receive or pay within a fixed range. A hedger takes a short position if he/she sells futures contracts while owning the underlying commodity to be delivered; a long position if he/she purchases futures contracts. The commonly known basis is defined as the difference between the futures and spot prices, which is mostly time-varying and mean-reverting. Due to such basis risk, a naïve hedging (equal and opposite) is unlikely to be effective. With the popularity of commodity futures, how to determine and implement the optimal hedging strategy has become an important issue in the field of risk management. Hedging strategies have been intensively studied since the 1960s. One of the most popular approaches to hedging is to quantify risk as variance, known as minimum-variance (MV) hedging. This hedging strategy is based on Markowitz portfolio theory, resting on the result that “a weighted portfolio of two assets will have a variance lower than the weighted average variance of the two individual assets, as long as the two assets are not perfectly and positively correlated.” MV strategy is quite well accepted, however, it ignores the expected return of the hedged portfolio and the risk preference of investors. Other hedging models with different objective functions have been studied intensively in hedging literature. Due to the conceptual simplicity, the value at risk (VaR) and conditional value at risk (C)VaR have been adopted as the hedging risk objective function. [...]
Author : Louis Gagnon
Publisher :
ISBN 13 :
Total Pages : pages
Book Rating : 4.:/5 (129 download)
Download or read book The Benefits of Dynamically Hedging the Toronto 35 Stock Index written by Louis Gagnon and published by . This book was released on 2008 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: A growing number of studies reveal that the performance of dynamic hedging strategies tends to vary across markets, producing large percentage reductions in variance in some and seemingly small reductions in others, relative to constant hedges. This paper examines the hedging effectiveness of Toronto 35 index futures contract and shows that the implemetation of a dynamic strategy exploiting the time-varying nature of the joint dynamics of the futures contract and the underlying stock index modeled with the bivariate GARCH(1,1) process yields economically significant in-sample and out-of-sample improvements in risk reduction, compared to static hedging strategy.
Author : Cédric de Ville de Goyet
Publisher :
ISBN 13 :
Total Pages : 27 pages
Book Rating : 4.:/5 (129 download)
Download or read book Comparing Conditional Hedging Strategies written by Cédric de Ville de Goyet and published by . This book was released on 2008 with total page 27 pages. Available in PDF, EPUB and Kindle. Book excerpt: The traditional approach to discriminate amongst two competing hedging strategies is to compare the sample portfolio return variance implied by each strategy. This simple approach suffers from two drawbacks. First, it is an unconditional performance measure which is theoretically not coherent with a dynamic hedging strategy that minimizes the conditional portfolio return variance. Second, estimating unconditional performance over the entire period may not be sufficcient since a strategy with a good unconditional hedging performance may not perform well at a particular point in time. In this paper, I use the Giacomini and White (2006), the Wald, and the Diebold and Mariano (1995) statistical tests in order to conditionally (and as a special case, unconditionally) compare the portfolio return variances implied by two competing hedging strategies. The attractive feature of the conditional perspective is that, in case of rejection of equal conditional hedging effectiveness among two initial strategies, it provides us with a new hedging strategy that selects at each date the initial strategy that will perform the best next period, conditional on current information. An application to several agricultural commodities illustrates the technique. For daily hedging horizons, it is found that most of the time Ederington's (1979) static strategy is superior to more elaborate dynamic strategies. This calls into question earlier results reported in the literature that were based on a much smaller database.
Author : Hong Li
Publisher :
ISBN 13 :
Total Pages : 47 pages
Book Rating : 4.:/5 (13 download)
Download or read book Dynamic Hedging of Longevity Risk written by Hong Li and published by . This book was released on 2015 with total page 47 pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper investigates dynamic hedging strategies for liabilities that are exposed to longevity risk. In particular, we consider the case where a hedger wishes to minimize the variance of her hedging error using longevity-linked derivatives. Time-consistent, closed-form solutions of optimal hedging strategies are obtained under a forward mortality framework. To cope with the fact that liquidity of longevity-linked derivatives is still limited, we also consider a liquidity constrained case where the hedger can only trade longevity-linked derivatives at a low frequency. The performance of the hedging strategies is evaluated in a numerical study with parameter estimates from the existing literature. We show that lowering the trading frequency of the longevity-linked derivatives only leads to a slight loss of the hedging performance. Even when the longevity-linked derivatives can only be traded at a very low frequency, dynamic hedging strategies still significantly outperform the static hedging strategies.
Author : Steve W. Martinez
Publisher :
ISBN 13 :
Total Pages : 76 pages
Book Rating : 4.0/5 ( download)
Download or read book The Optimal Dynamic Hedging Positions for Grain Producers Before Harvest written by Steve W. Martinez and published by . This book was released on 1989 with total page 76 pages. Available in PDF, EPUB and Kindle. Book excerpt: Dynamic optimal hedges are calculated and evaluated for a hypothetical corn producer in North Carolina. Corn yield forecasts, harvest basis forecasts, and futures prices are used to estimate variances and covariances which affect the optimal hedges. Returns from dynamic hedging are compared to alternative marketing strategies, such as optimal hedging with no adjustment in the position, to evaluate performance. The effect of institutional constraints and costs on dynamic hedging performance is also examined.
Author : Hui Qu
Publisher :
ISBN 13 :
Total Pages : 35 pages
Book Rating : 4.:/5 (13 download)
Download or read book Dynamic Hedging Performance of the CSI 300 Index Futures - The Realized Minimum-Variance Hedge Ratio Approach written by Hui Qu and published by . This book was released on 2018 with total page 35 pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper comprehensively investigates the dynamic hedging performance of China's CSI 300 index futures by using the realized minimum-variance hedge ratio (RMVHR) as an efficient way to utilize the high-frequency intraday information. We thoroughly examine a number of RMVHR-based time-series models for CSI 300 index futures, and evaluate the out-of-sample dynamic hedging performance in comparison to the conventional hedging models using daily prices, as well as the vector heterogeneous autoregressive model using five-minute prices. Our results show that the dynamic hedging performance of the RMVHR-based methods robustly dominates that of the conventional methods in terms of major performance measures including the hedge ratio, the hedging effectiveness, the portfolio return and the Sharp ratio in the out-of-sample forecast period. Furthermore, the superiority of the RMVHR-based methods is consistent during different volatility regimes of China's financial markets, including China's abnormal market fluctuations in 2015.
Author : Valeriy Zakamulin
Publisher :
ISBN 13 :
Total Pages : 27 pages
Book Rating : 4.:/5 (129 download)
Download or read book The Best Hedging Strategy in the Presence of Transaction Costs written by Valeriy Zakamulin and published by . This book was released on 2008 with total page 27 pages. Available in PDF, EPUB and Kindle. Book excerpt: Considerable theoretical work has been devoted to the problem of option pricing and hedging with transaction costs. A variety of methods have been suggested and are currently being used for dynamic hedging of options in the presence of transaction costs. However, very little was done on the subject of an empirical comparison of different methods for option hedging with transaction costs. In a few existing studies the different methods are compared by studying their empirical performances in hedging only a plain-vanilla short call option. The reader is tempted to assume that the ranking of the different methods for hedging any kind of option remains the same as that for a vanilla call. The main goal of this paper is to show that the ranking of the alternative hedging strategies depends crucially on the type of the option position being hedged and the risk preferences of the hedger. In addition, we present and implement a simple optimization method that, in some cases, improves considerably the performance of some hedging strategies.
Author : Wenxi Yan
Publisher :
ISBN 13 :
Total Pages : pages
Book Rating : 4.:/5 (13 download)
Download or read book The Hedging Effectiveness of European Style S & P 100 Versus S & P 500 Index Options written by Wenxi Yan and published by . This book was released on 2014 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt:
Author : Kenneth F. Kroner
Publisher :
ISBN 13 :
Total Pages : 44 pages
Book Rating : 4.0/5 ( download)
Download or read book Time Varying Distributions and Dynamic Hedging with Foreign Currency Futures written by Kenneth F. Kroner and published by . This book was released on 1991 with total page 44 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Author : Gyu-Hyun Moon
Publisher :
ISBN 13 :
Total Pages : 19 pages
Book Rating : 4.:/5 (129 download)
Download or read book Dynamic Hedging Performance with the Evaluation of Multivariate GARCH Models written by Gyu-Hyun Moon and published by . This book was released on 2010 with total page 19 pages. Available in PDF, EPUB and Kindle. Book excerpt: This article examines the hedging performance of the conventional OLS model and a variety of dynamic hedging models for the in-sample and out-of-sample periods of Korean daily KOSDAQ STAR (KOSTAR) index futures. We employ the rolling OLS and various popular multivariate GARCH models to estimate and forecast the conditional covariances and variances of KOSTAR spot and futures returns. The paper finds that dynamic hedging methods outperform the conventional method for the out-of-sample period. However, the simple rolling OLS is superior to all the other popular multivariate GARCH models.
Author : Peter Carr
Publisher :
ISBN 13 :
Total Pages : 61 pages
Book Rating : 4.:/5 (129 download)
Download or read book Static Hedging of Standard Options written by Peter Carr and published by . This book was released on 2017 with total page 61 pages. Available in PDF, EPUB and Kindle. Book excerpt: We consider the hedging of options when the price of the underlying asset is always exposed to the possibility of jumps of random size. Working in a single factor Markovian setting, we derive a new spanning relation between a given option and a continuum of shorter-term options written on the same asset. In this portfolio of shorter-term options, the portfolio weights do not vary with the underlying asset price or calendar time. We then implement this static relation using a finite set of shorter-term options and use Monte Carlo simulation to determine the hedging error thereby introduced. We compare this hedging error to that of a delta hedging strategy based on daily rebalancing in the underlying futures. The simulation results indicate that the two types of hedging strategies exhibit comparable performance in the classic Black-Scholes environment, but that our static hedge strongly outperforms delta hedging when the underlying asset price is governed by Merton (1976)'s jump-diffusion model. The conclusions are unchanged when we switch to ad hoc static and dynamic hedging practices necessitated by a lack of knowledge of the driving process. Further simulations indicate that the inferior performance of the delta hedge in the presence of jumps cannot be improved upon by increasing the rebalancing frequency. In contrast, the superior performance of the static hedging strategy can be further enhanced by using more strikes or by optimizing on the common maturity in the hedge portfolio.We also compare the hedging effectiveness of the two types of strategies using more than six years of data on Samp;P 500 index options. We find that in all cases considered, a static hedge using just five call options outperforms daily delta hedging with the underlying futures. The consistency of this result with our jump model simulations lends empirical support for the existence of jumps of random size in the movement of the Samp;P 500 index. We also find that the performance of our static hedge deteriorates moderately as we increase the gap between the maturity of the target call option and the common maturity of the call options in the hedge portfolio. We interpret this result as evidence of additional random factors such as stochastic volatility.
Author : Andrea Petrelli
Publisher :
ISBN 13 :
Total Pages : 85 pages
Book Rating : 4.:/5 (13 download)
Download or read book Optimal Dynamic Hedging of Equity Options written by Andrea Petrelli and published by . This book was released on 2019 with total page 85 pages. Available in PDF, EPUB and Kindle. Book excerpt: Attempted dynamic replication based valuation of equity options is analyzed using the Optimal Hedge Monte-Carlo (OHMC) method. Detailed here are (1) the option hedging strategy and its costs; (2) irreducible hedging errors associated with realistically fat-tailed & asymmetric return distributions; (3) impact of transaction costs on hedging costs and hedge-performance; (4) impact of conditioning hedging strategy on realized volatility. The asset returns are addressed by the General Auto-Regressive Asset Model (GARAM, Wang et al [2009]) that employs two stochastic processes to model the return magnitude and sign and results in a realistic term-structure of the fat-tails, dynamic-asymmetry, and clustering of volatility. The relationship between the option price and ensuing return versus risk characteristics of the option seller-hedger & buyer-hedger are described for different conditioning regimes in GARAM. A hurdle return is employed to assess bounding values of options that reflect hedging costs, the inevitable hedge slippage, & transaction costs. The hurdle return can also be used to make relative-value inferences (e.g., by comparing to the return-risk profile of a delta-1 position in the underlying) or even fit option values to market while still informing the trader about residual risk and its asymmetry between option buyer-hedger and seller-hedger. Tail-risk measures are shown to diminish by conditioning the hedging strategy and valuation on realized volatility. The role of fat-tails and uncertainty of realized volatility and its temporal persistence in controlling the optimal hedge ratios, irreducible hedging errors, and option-trading risk premiums are delineated.
Author : Rama Cont
Publisher :
ISBN 13 :
Total Pages : 27 pages
Book Rating : 4.:/5 (129 download)
Download or read book Dynamic Hedging of Portfolio Credit Derivatives written by Rama Cont and published by . This book was released on 2009 with total page 27 pages. Available in PDF, EPUB and Kindle. Book excerpt: We compare the performance of various hedging strategies for index CDO tranches across a variety of models and hedging methods during the recent credit crisis. Our empirical analysis shows evidence for market incompleteness: a large proportion of the risk in CDO tranches appears to be unhedgeable. We also show that, unlike what is commonly assumed, dynamic models do not necessarily perform better the static models, nor do high-dimensional bottom-up models perform better than simpler top-down models. Moreover, top-down and regression-based hedging would have provided significantly better hedges than bottom-up hedging with single name CDS during the Lehman Brothers default event. Our empirical study also reveals that while significantly large moves - quot;jumpsquot; - do occur in the CDS, index and tranche spreads, these jumps do not necessarily occur on default dates of index constituents, an observation which contradicts the intuition conveyed by some recently proposed credit risk models.
