Model risk and option hedging

This paper presents a theoretical approach to option hedging and valuation when traders are facing model risk. Model risk is restrictively defined as the financial risk resulting from the choice of an approximating model to proxy for the true but ex-ante unknown state space of the underlying security process. A generalized model is defined for estimating the appropriate volatility markup, which is dependent on the noisiness of the volatility estimate over time. Delta neutral hedge portfolios are created using simulated S&P 500 option prices to demonstrate that using a volatility markup in the traditional binomial model reduces model risk.     

Managerial hedging ability and firm risk

Modern portfolio theory suggests that undiversified executives would choose to diversify their significant holdings of their firm??s stock if the opportunity was available. Recent work suggests that managerial hedging is more prevalent than in years past as more innovative hedging instruments have become available to executives. Typically, unrestricted shares are used in these hedging transactions whereas restricted shares are not. In this paper, I examine whether a CEO??s composition of firm stockholdings between restricted and unrestricted shares impacts the level of risk undertaken by the firm. I document a negative and statistically significant relationship between firm risk and the proportion of CEO total shareholdings that are unrestricted and this negative relationship holds for alternative measures of firm risk. This result supports the notion that the composition of a CEO??s portfolio of firm stock between restricted and unrestricted shares is a significant determinant of firm risk.     

Shortfall risk minimization in a discrete regime switching model

Abstract There have been profound ideas on how to measure risk which have influenced the financial market. Shortfall risk minimization is one of the methods which has attracted considerable attention. This problem has been studied for the binomial model in Runggaldier and Zaccaria (2000) and Runggaldier, Trivellato and Vargiolu (2002) and for the trinomial model in Scagnelatto and Vargiolu (2002). In this paper, we investigate shortfall risk minimization in a discrete regime switching model. In the model, we have two possible regimes, which are both binomial. To fix ideas, we can think of the second regime as being the consequence of the presence of inside information, but this can also be due to other factors. Explicit solutions for one-period models are given.     

House price risk and the hedging benefits of home ownership

Using a repeat-sales methodology, this paper finds that estimates of house price risk based on aggregate house price indices substantially underestimate the true size of house price risk. This is the result of the fact that aggregate house price indices average away the idiosyncratic volatility in house prices. Additional results show that the idiosyncratic risk exceeds the hedging benefits of home ownership. These results imply that for many home owners, owning a house may well add more price risk than it hedges away. These findings are based on a detailed dataset of individual housing transactions in the Netherlands.     

Selective hedging with market views and risk limits: the case of Hydro-Quebec

This study presents how Hydro-Quebec manages its short-term financial risks. The quantitative hedging model is articulated over forward and volatility premia and constrained by a yearly risk limit provided by the firm's Finance Committee. The hedging solutions provide the optimal linear hedging parameters and option strike levels. The second part of the paper is devoted to a theoretical analysis of the sensitivity of the optimal solutions to changes in the premia, by means of the general implicit function theorem.     

On the existence of an increasing symmetric equilibrium in (k + 1)-st price common value auctions

In a classical result, Milgrom (1981a) established that the Monotone Likelihood Ratio Property (MLRP) is a sufficient condition for the existence of an increasing symmetric equilibrium in (k + 1)-st price common value auctions. We show: (1) If MLRP is violated, then for any number of bidders and objects there exists a distribution of the common value such that no increasing symmetric equilibrium exists; (2) If MLRP is violated, then for any distribution of the common value there exist infinitely many pairs of the number of bidders and the number of objects such that an increasing symmetric equilibrium does not exist; (3) There are examples where an increasing symmetric equilibrium exists even when the signal distribution violates MLRP.     

Cardinal versus ordinal criteria in choice under risk with disconnected utility ranges

This paper provides a formal justification for the existence of subjective random components intrinsic to the outcome evaluation process of decision makers and explicitly assumed in the stochastic choice literature. We introduce the concepts of admissible error function and generalized certainty equivalent, which allow us to analyze two different criteria, a cardinal and an ordinal one, when defining suitable approximations to expected utility values. Contrary to the standard literature requirements for irrational preferences, adjustment errors arise in a natural way within our setting, their existence following directly from the disconnectedness of the range of the utility functions. Conditions for the existence of minimal errors are also studied. Our results imply that neither the cardinal nor the ordinal criterion do necessarily provide the same evaluation for two or more different prospects with the same expected utility value. As a consequence, a rational decision maker may define two different generalized certainty equivalents when presented with the same prospect in two different occasions.     

创新中国高新科技产业风险资本市场机制(上)

当今世界,任何国家的国际竞争力,任何企业的市场竞争力,归根结底取决于科学技术的研究开发及推广应用状况。而科学技术发展的规模和速度基本上是由资金的投入多少来决定的,科技成果的应用推广更需大量的资金投入。一直以来,科技成果难以转化是制约我国高新科技产业发展的主要障碍,由于高科技产业的发展具有高投入、高风险和高收益的特点,一方面是传统的银行信贷投入无法承受高新科技产业发展的     

创新中国高科技产业风险资本市场机制(下)

二、风险资本市场发展的微观环境机制建立 如果宏观环境机制建立是风险资本市场发展的基本条件,那么微观环境机制建立将是风险资本市场发展的核心动因。其需要有效性的风险资本组织形式、多渠道的风险资本筹集机制以及专业化的人才培养机制。 (一)有效性的风险资本组织形式     

Realization of closed,convex, and symmetric subsets of the unit square as regions of risk for testing simple hypotheses

It is well-known that the region of risk for testing simple hypotheses is some closed, convex, and (1/2, 1/2)-symmetric subset of the unit square, which contains the points (0, 0) and (1, 1). It is shown that for any such subsetR of the unit square and any atomless probability measureP on some -algebra there exists some probability measureQ on the same -algebra such thatR is the corresponding region of risk for testingP againstQ. This generalizes a result of [4] and is as a first step derived here for the special case, whereP is equal to the uniform distribution on the unit interval. The corresponding distributionQ is given explicitly in this case and the general case is treated by some well-known measure-isomorphism. This method of proof shows thatQ might be chosen to be of typeQ=Q ₁+(1–)Q ₂ for some satisfying 01, whereQ ₁ is a probability measure, which is absolutely continuous with respect toP andQ ₂ is a one-point mass.     

AHP层次分析法在跨境电商项目风险管理中的研究

目前,电子商务在国内变得日益流行,特别是近几年跨境电子商务在国家政策的支持下得到了蓬勃发展,跨境电商平台也如雨后春笋般地不断涌现。然而,在构筑此类平台系统时,存在着诸多项目管理风险,如业务模式,物流模式等风险。文章在传统的项目管理方法的基础上,引入运筹学理论——层次分析法,针对跨境电商平台项目管理的各项风险要素进行评估,构建了适用于跨境电商平台的风险分析模型,并对各项风险要素进行定量的风险评估,以便于后续有针对性地对识别出的项目风险实现相应的风险应对策略,降低项目各个阶段的运行风险,提升跨境电商系统的项目管理水平。     

关于数论函数方程(c)((c)(n))=S(n)

对于任意正整数n,设(c)(n)和S(n)分剐是关于n的Euler函数和Smarandache函数.本文利用初等及分类讨论的方法,研究并得到了方程(c)(P(n))=S(n)的所有正整数解.     

(2) Assumptions

We continue to make our best guesses about likely policy developments which at this time broadly corresponds to "unchanged policy". Compared with our October projections we estimate that public expenditure is running at a higher level than previously expected and we assume that the higher level will be maintained in the future. As a result, there will be no space for tax reductions in the coming Budget and so we now assume that the National Insurance Surcharge is unchanged. All other tax rates also remain unaltered, except for the indexation of tax allowances and bands and revalorisation of indirect taxes.