Diversification and optimal hedges for socially responsible investment in Brazil

This study contributes to the literature on socially responsible investing by examining the diversification potential of commodities, specifically oil, gold and clean energy together with the Brazilian Corporate Sustainability Index (ISE). Multivariate GARCH models are used to model volatility spillovers and conditional correlation in pairs of stocks containing ISE. Specifically, A-BEKK and A-DCC models with spillovers are estimated. The models’ results are used to compute and analyze the optimal weights and hedge ratios for stock portfolio holdings. The greatest benefit from diversification is obtained through the acquisition of gold and then OVX.     

Modelling exchange-traded barrier options traded in the Australian options market

Barrier options traded in the Australian market vary considerably in terms of the extent to which the barrier is monitored and in terms of the location of the barrier level relative to the exercise price. This paper examines the impact of these differences on prices and also on deltas and gammas. We find that it is not possible to generalize results concerning hedge parameter values to all barrier options. We find that options examined by Easton et al. (2004) do not display discontinuity of deltas at the barrier levels and that their apparent overpricing cannot be attributed to hedging difficulties.     

Pricing and hedging European options with discrete-time coherent risk

The aim of the paper is to provide as explicit as possible expressions for upper/lower prices and for superhedging/subhedging strategies based on discrete-time coherent risk measures. This is done on three levels of generality. For a general infinite-dimensional model, we prove the fundamental theorem of asset pricing. For a general multidimensional model, we provide expressions for prices and hedges. For a wide class of models, in particular, including GARCH, we give more concrete formulas, a sufficient condition for the uniqueness of a hedging strategy, and a numerical algorithm.      

论国内市场寻找最佳避险比率的过程

国内即将推出指数期货，投资者可以利用期货来规避现货投资的风险，但如何寻找最佳的避险比率呢？本文通过欧美日港台等市场的比较研究，认为国内可能需要采用二阶段估计法寻找最佳的避险比率，而且，对于国内股票市场来说，β值在某些时候出现较大的跳动，因此，应该采用相关修正模型调整历史β值。本文的结论为即将推出指数期货的国内市场提供了重要的实践指导建议。     

Optimal close-to-home biases in asset allocation

This article studies optimal portfolio decisions with (long-term) liabilities for small open economy based investors, including the optimality of currency hedging (Walker (2008a). Chile is the home country of the representative investor, but results are likely to hold more generally. The problem is set up as in [Sharpe & Tint, 1990] and [Hoevenaars et al., 2007]. Hedging the liabilities and the consumption currency may imply optimal close-to-home biases, defined as overweighting asset classes which are highly correlated with local ones. The implementation challenges include: developing a methodology to estimate expected returns in local (real) currency; estimating the covariance matrix allowing for serial and crossed-serial correlations; and checking the results' robustness using a resampling method. The findings are: (i) portfolios always have optimal close-to-home biases, beyond the investment in local fixed income to hedge liabilities; (ii) currency hedging reduces investment in close-to-home asset classes, (iii) but has ambiguous effects on welfare — detected with the resampling method; (iv) currency hedged long-term US bonds are useful for hedging local interest rate risk; and (v) liabilities give access to high risk-return portfolios, not affecting otherwise the overall shape of the efficient regions. This article can be useful to investors based on small open economies, including pension funds, insurance companies, sovereign wealth funds and Central Banks.     

我国外汇储备中黄金配置问题研究

随着中国外汇储备规模的激增,中国外汇储备的结构矛盾突现,作为储备资产之一的黄金的合理配置,引起了人们的关注。本文根据黄金的货币属性和实物属性,分别基于储备功能和对冲作用分析了黄金配置问题。研究表明,基于储备功能的黄金储备占外汇储备的合理比重为5.87%,基于对冲作用本文提出依据PI指数来配置黄金。     

The cheapest hedge

Investors often wish to insure themselves against the payoff of their portfolios falling below a certain value. One way of doing this is by purchasing an appropriate collection of traded securities. However, when the derivatives market is not complete, an investor who seeks portfolio insurance will also be interested in the cheapest hedge that is marketed. Such insurance will not exactly replicate the desired insured-payoff, but it is the cheapest that can be achieved using the market.Analytically, the problem of finding a cheapest insuring portfolio is a linear programming problem. The present paper provides an alternative portfolio dominance approach to solving the minimum-premium insurance portfolio problem. This affords remarkably rich and intuitive insights to determining and describing the minimum-premium insurance portfolios.     

Pricing and hedging contingent claims using variance and higher order moment swaps

This paper suggests perfect hedging strategies of contingent claims under stochastic volatility and random jumps of the underlying asset price. This is done by enlarging the market with appropriate swaps whose pay-offs depend on higher order sample moments of the asset price process. Using European options and variance swaps, as well as barrier options written on the S&P 500 index, the paper provides clear cut evidence that hedging strategies employing variance and higher order moment swaps considerably improves upon the performance of traditional delta hedging strategies. Inclusion of the third-order moment swap improves upon the performance of variance swap-based strategies to hedge against random jumps. This result is more profound for short-term out-of-the money put options.     

Derivatives use and financial instrument disclosure in the extractives industry

This article documents the use and disclosure of derivatives in the Australian extractives industry. We find that derivatives are used by 23 per cent of our sample, with mitigation of commodity risk and foreign exchange risk being the most common purposes for which derivatives are used. The most common types of derivatives used in the sector for hedging purposes are forward rate agreements and options. Results indicate that derivative use is positively associated with financial risk and firm size. We also examine the relation between firm characteristics and the extent of financial instrument disclosure, using a disclosure index based on the additional requirements in IFRS 7 Financial Instruments: Disclosures. Empirical results reveal that large firms with higher leverage, which use derivatives, and are audited by a Big 4 auditor provide more extensive disclosure of financial instruments.     

Multivariate continuous-time modeling of wind indexes and hedging of wind risk

With the introduction of the exchange-traded German wind power futures, opportunities for German wind power producers to hedge their volumetric risk are present. We propose two continuous-time multivariate models for wind power utilization at different wind sites, and discuss the properties and estimation procedures for the models. Applying the models to wind index data for wind sites in Germany and the underlying wind index of exchange-traded wind power futures contracts, the estimation results of both models suggest that they capture key statistical features of the data. We show how these models can be used to find optimal hedging strategies using exchange-traded wind power futures for the owner of a portfolio of so-called tailor-made wind power futures. Both in-sample and out-of-sample hedging scenarios are considered, and, in both cases, significant variance reductions are achieved. Additionally, the risk premium of the German wind power futures is analysed, leading to an indication of the risk premium of tailor-made wind power futures.