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.     

Corporate hedging and input price risk

Input price variability is an important source of risk for corporations that process raw commodities. Models of optimal input hedging are developed in this paper based on the maximization of managerial expected utility. The relationship between hedging strategies and output decisions is examined to assess the impact of the ability to set output prices on futures market participation. As a firm's ability to set output prices diminishes in the short run, input futures positions increase although the optimal hedge ratio may either increase or decrease. For a perfectly competitive firm, however, shifts in output price caused by input price changes provide a natural cash market hedge of input price risk and reduce the firm's optimal input futures position.     

Determinants of corporate hedging: A (statistical) meta-analysis

While literature provides several hedging theories, evidence on the corporate incentives to hedge remains ambiguous. We synthesize data of empirical studies via statistical meta-analysis to test different hedging hypotheses. To our knowledge, this constitutes the first application of such a methodology in financial economics. Our results imply that financial distress costs induce firms to hedge. We find weak evidence that the underinvestment problem and the dependence on costly external financing influence hedging behavior. Taxes and agency conflicts do not show explanatory power. Because statistical and narrative reviews yield different outcomes, we see various other application possibilities for meta-analysis in financial economics.     

Optimal corporate hedging using options with basis and production risk

We investigate the optimal hedging strategy for a firm using options, where the role of production and basis risk are considered. Contrary to the existing literature, we find that the exercise price which minimizes the shortfall of the hedged portfolio is primarily affected by the amount of cash spent on the hedging. Also, we decompose the effect of production and basis risk showing that the former affects hedging effectiveness while the latter drives the choice of the optimal contract. Fitting the model parameters to match a financial turmoil scenario confirms that suboptimal option moneyness leads to a non-negligible economic loss.     

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.     

Value investing versus other investment strategies: A volatility spillover approach and portfolio hedging strategies for investors

Motivated by the incessant demand for portfolio diversification, this study examines the connectedness between value and diverse types of stocks (growth, momentum, ESG, high beta, classic S&P 500, volatility). The applied methodology encompasses the time-varying parameter vector autoregressive (TVP-VAR) extension of the Diebold and Yilmaz (2012) framework for the period from 03/31/2011 to 03/31/2021. Results show moderate volatility transmissions among the sampled assets, which tend to escalate during periods of turmoil, such as the European Sovereign Debt Crisis, the plunge in oil prices and the COVID-19 outbreak. Growth and ESG stocks play an indispensable part in the transmission mechanism. Moreover, we investigate the hedging ability of value stocks within a portfolio containing other stocks, by estimating hedge ratios and optimal weights with the usage of conditional variance estimates (DCC-GARCH). The empirical findings reveal that value stocks can adequately hedge against the risk deriving from the volatility of the remaining investment instruments, especially in the case of high beta and volatility stocks. Thus, this analysis provides portfolio managers and investors with valuable insights in order for them to hedge their stock portfolios effectively.     

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.     

Internet of things (IoT) platform competition: Consumer switching versus provider multihoming

Internet of things (IoT) brings new opportunities and represents a new source of welfare and efficiency. However, the emerging consumer IoT platform competition creates the risk of monopoly power due to network effects. Overall, it is likely that both competition (incentivized through lowering consumer switching costs) and cooperation (achieved through interoperability, which enables data portability and service provider multihoming) are needed to maximize social welfare. This article aims to address how consumer switching costs and provider multihoming affect competition of emerging consumer IoT data platforms under different market conditions and regulatory schemes. It utilizes agent-based modelling that is especially suitable when decision making is distributed at a micro level while some rules are applied in a centralized fashion. The obtained findings emphasize the role of the regulator in guiding the market. It seems that when switching costs diminish at all sides of the platforms, consumers and service providers will favour the platform with a higher number of users. Further, service provider multihoming mitigates market concentration on both sides of a platform when switching costs are low. Thus, there seems to be a minimum level of interoperability needed to promote market competition. Further, although data portability gives more freedom to consumers in choosing a platform provider, it may result in a winner-takes-all situation due to strong indirect network effects.     

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.     

An analysis of default risk in the Home Equity Conversion Mortgage (HECM) program

While reverse mortgages are intended as a tool to enable financial security for older homeowners, in 2014, nearly 12 percent of reverse mortgage borrowers in the federally insured Home Equity Conversion Mortgage (HECM) program were in default on their property taxes or homeowners insurance. Unlike the traditional mortgage market, there were no risk-based underwriting guidelines for HECMs through 2014. In response to the relatively high default rate, a variety of policy responses were implemented, including establishing underwriting guidelines. However, there is a lack of data and analysis to inform such criteria. Our analysis follows 30,000 seniors counseled for reverse mortgages between 2006 and 2011. The data includes comprehensive financial and credit report attributes, not typically available in analyses of reverse mortgage borrowers. Using a bivariate probit model that accounts for selection, we estimate the likelihood of tax and insurance default. Financial characteristics that increase default risk include the percentage of funds withdrawn in the first month of the loan, a lower credit score, higher property tax to income ratio, low or no unused revolving credit, and a history of being past due on mortgage payments or having a tax lien on the property. Our estimate of the elasticity of default with respect to credit scores is similar to that for closed-end home equity loans, but higher than that for HELOCs. We simulate the effects of alternative underwriting criteria and policy changes on the probability of take-up and default. Reductions in the default rate with a minimal effect on participation can be achieved by requiring that participants with low credit scores set aside some of their HECM funds for future property tax and insurance payments, a form of escrowing.     

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。     

High reliability Human Resource Management (HRM): A system for high risk workplaces

High Performance Work Systems (HPWS) research is based on the search for the most suitable bundle of complementary practices appropriate for the organisation and its operating environment. We examine the contents of a HPWS in organisations seeking impeccable safety and reliability as their foremost ‘performance’ outcome. We propose a ‘High Reliability HRM’ framework, and examine the degree of implementation in a three case study of Australian state emergency services organisations. The findings highlight HRM practices inconsistent with the framework, and illustrated by rich interview accounts, we detail associated negative implications for employee behaviour and attitudes. We contribute to HPWS research by empirically examining how reliability-seeking organisations conceptualise and implement HRM systems. This study emphasises how inconsistency in HRM practice bundles can pose a threat to reliable service provision, a critical finding for emergency services and reliability-seeking organisations more broadly.     

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.     

萨总(统)

我们对法国还是很有幻想的，我们对法国男人更加是有幻想的，他们都应该很浪漫、很抒情、很幽雅、很文化。