Feedback Effects of Dynamic Hedging Strategies in the Presence of Transaction Costs
Author: Elettra Agliardi
Publisher:
Published: 2002
Total Pages: 13
ISBN-13:
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Feedback Effects of Dynamic Hedging Strategies in the Presence of Transaction Costs
Author:
Publisher:
Published: 2002
Total Pages:
ISBN-13:
DOWNLOAD EBOOKWe study the destabilising effect of dynamic hedging strategies on the price of the underlying in the presence of sunk costs of transaction. Once sunk costs of transaction are taken into account, continuous portfolio rehedging is no longer an optimal strategy. Using a non-optimising (local in time) strategy for portfolio rebalancing, explicit dynamics for the price of the underlying are derived, focusing in particular on the excess volatility and feedback effects of these portfolio insurance strategies. Further, we show how these latter depend on the heterogeneity of the insured payoffs. Finally, conditions are derived under which it may still be reasonable, from a practical viewpoint, to implement Black - Scholes strategies.
Analysis and Evaluation of Hedging Strategies in the Presence of Transaction Costs
Author: Ola Backman
Publisher:
Published: 2001
Total Pages: 58
ISBN-13:
DOWNLOAD EBOOKMarket Volatility and Feedback Effects from Dynamic Hedging
Author: Rüdiger Frey
Publisher:
Published: 2019
Total Pages:
ISBN-13:
DOWNLOAD EBOOKIn the paper we analyse in what way the implementation of dynamic hedging strategies affects the volatility of the underlying asset. To this end we first construct an economy where equilibrium prices are given by the classical Black- Scholes model of geometric Brownian Motion. Then we add program traders running dynamic hedging strategies into the model and study the resulting change of the diffusion process describing equilibrium asset prices. We derive an explicit formula for the transformation of market volatility under the impact of hedging. It turns out that volatility increases and becomes price-dependent. Moreover we discuss in what sense hedging strategies calculated under the assumption of constant volatility are still appropriate for the hedging of written option contracts even if the feedback effect of their implementation on prices is taken into account.
Hedging Portfolios of Financial Guarantees
Author: Van Son Lai
Publisher:
Published: 2009
Total Pages: 34
ISBN-13:
DOWNLOAD EBOOKWe propose a framework a la Davis et al. (1993) and Whalley and Wilmott (1997) to study dynamic hedging strategies on portfolios of financial guarantees in the presence of transaction costs. We contrast four dynamic hedging strategies including a utility-based dynamic hedging strategy, in conjunction with using an asset-based index, with the strategy of no hedging. For the proposed utility-based strategy, the portfolio rebalancing is triggered by the tradeoff between transaction costs and utility gains. Overall, using a Froot and Stein (1998) and Perold (2005) type of risk-adjusted performance measurement metric, we find the utility-based strategy to be a good compromise between the delta hedging strategy and the passive stance of doing nothing. This result is even stronger with higher transaction costs. However, if the insured firms assets are not traded or in a high transaction costs environment, the guarantor can use an index-based security as hedging instrument.
Econophysics and Sociophysics: Recent Progress and Future Directions
Author: Frédéric Abergel
Publisher: Springer
Published: 2017-01-11
Total Pages: 254
ISBN-13: 3319477056
DOWNLOAD EBOOKThis book presents the proceedings from ECONOPHYS-2015, an international workshop held in New Delhi, India, on the interrelated fields of “econophysics” and “sociophysics”, which have emerged from the application of statistical physics to economics and sociology. Leading researchers from varied communities, including economists, sociologists, financial analysts, mathematicians, physicists, statisticians, and others, report on their recent work, discuss topical issues, and review the relevant contemporary literature. A society can be described as a group of people who inhabit the same geographical or social territory and are mutually involved through their shared participation in different aspects of life. It is possible to observe and characterize average behaviors of members of a society, an example being voting behavior. Moreover, the dynamic nature of interaction within any economic sector comprising numerous cooperatively interacting agents has many features in common with the interacting systems of statistical physics. It is on these bases that interest has grown in the application within sociology and economics of the tools of statistical mechanics. This book will be of value for all with an interest in this flourishing field.
Swing Pricing and Fragility in Open-end Mutual Funds
Author: Dunhong Jin
Publisher: International Monetary Fund
Published: 2019-11-01
Total Pages: 46
ISBN-13: 1513519492
DOWNLOAD EBOOKHow to prevent runs on open-end mutual funds? In recent years, markets have observed an innovation that changed the way open-end funds are priced. Alternative pricing rules (known as swing pricing) adjust funds’ net asset values to pass on funds’ trading costs to transacting shareholders. Using unique data on investor transactions in U.K. corporate bond funds, we show that swing pricing eliminates the first-mover advantage arising from the traditional pricing rule and significantly reduces redemptions during stress periods. The positive impact of alternative pricing rules on fund flows reverses in calm periods when costs associated with higher tracking error dominate the pricing effect.
Sustainable Life Insurance
Author: Aymeric Kalife
Publisher: CRC Press
Published: 2023-08-18
Total Pages: 541
ISBN-13: 1000876276
DOWNLOAD EBOOKSustainable Life Insurance: Managing Risk Appetite for Insurance Savings and Retirement Products gives an overview of all relevant aspects of traditional and non-traditional savings and retirement products from both insurers’ and policyholders’ respective risk appetites. Examples of such products include general accounts, whole life, annuities (variable, fixed and fixed indexed, structured), index-linked products, CPPI-based products, etc. The book contains technical details associated with both practice and theory, specifically related to modelling, product design, investments and risk management challenges and solutions, tailored to both insurers’ and policyholders’ perspectives. Features The book offers not only theoretical background but also concrete, cutting-edge "quick wins" across strategic and operational business axes. It will be an asset for professionals in the insurance industry, and a great teaching/learning resource for courses in risk management, insurance modelling, and more. The book highlights the operational challenges encountered across modelling, product designs and hedging.
Model Risk
Author: Rajna Gibson
Publisher: Risk Publications
Published: 2000
Total Pages: 378
ISBN-13:
DOWNLOAD EBOOKA comprehensive compilation on the concept of model risk and the potential pitfalls associated with modelling financial risks, this book provides an assessment of various models, examining the weaknesses and provides methods to mitigate potential model failures and deficiencies. It also covers the testing of models, what should be tested and what the parameters should be, with core contributions selected and introduced by Professor Rajna Gibson.
Hedge Funds, Financial Intermediation, and Systemic Risk
Author: John Kambhu
Publisher: DIANE Publishing
Published: 2008-04
Total Pages: 214
ISBN-13: 1428988769
DOWNLOAD EBOOKHedge funds have become important players in the U.S. & global capital markets. These largely unregulated funds use: a variety of complex trading strategies & instruments, in their liberal use of leverage, in their opacity to outsiders, & in their convex compensation structure. These differences can exacerbate market failures associated with agency problems, externalities, & moral hazard. Counterparty credit risk mgmt. (CCRM) practices are the first line of defense against market disruptions with potential systemic consequences. This article examines how the unique nature of hedge funds may generate market failures that make CCRM for exposures to the funds intrinsically more difficult to manage, both for regulated institutions & for policymakers. Ill.
