Transparency in the interbank market and the volume of bank intermediated loans

In the present paper we study the equilibrium interaction through which the interbank market is related to the public lending and borrowing market. It turns out that this interaction is affected by the transparency in the interbank market. Interbank market transparency is modeled by means of more informative signals about future interbank rates. We find that more transparency might increase or decrease the volume of bank intermediated loans in the public market. In particular, the impact of more transparency on the volume of loans depends on the curvature of the marginal cost function of the banking firm. Furthermore, we find that expected profits of the bank are higher when the interbank market is more transparent.     

CLOSED-FORM SOLUTIONS FOR OPTIMAL PORTFOLIO SELECTION WITH STOCHASTIC INTEREST RATE AND INVESTMENT CONSTRAINTS

We examine the portfolio choice problem of an investor with constant relative risk aversion in a financial market with partially hedgeable interest rate risk. The individual shadow price of the portfolio constraint is characterized as the solution of a new backward equation involving Malliavin derivatives. A generalization of this equation is studied and solved in explicit form. This result, applied to our financial model, yields closed-form solutions for the shadow price and the optimal portfolio. The effects of parameters such as risk aversion, interest rate volatility, investment horizon, and tightness of the constraint are examined. Applications of our method to a monetary economy with inflation risk and to an international setting with currency risk are also provided.     

THE TERM STRUCTURE OF INTEREST RATES AS A GAUSSIAN RANDOM FIELD

A simple model of the term structure of interest rates is introduced in which the family of instantaneous forward rates evolves as a continuous Gaussian random field. A necessary and sufficient condition for the associated family of discounted zero-coupon bond prices to be martingales is given, permitting the consistent pricing of interest rate contingent claims. Examples of the pricing of interest-rate caps and the situation when the Gaussian random field may be viewed as a deterministic time change of the standard Brownian sheet are discussed.     

Hedging the portfolio of raw materials and the commodity under the mark-to-market risk

This paper considers the hedging problem of a portfolio composed of raw materials and a commodity. A new theoretical model is presented to manage the risk exposure of the portfolio under the mark-to-market risk. Moreover, we employ the Lemke algorithm to obtain the optimal hedging strategy. We use a case of the soybean oil manufacturer from May 2008 to June 2011 to illustrate the proposed model and algorithm. The results show that the mark-to-market risk must be taken into account when devising the hedging strategies.     

PRICING AND HEDGING SHORT STERLING OPTIONS USING NEURAL NETWORKS

This paper compares the performance of artificial neural networks (ANNs) with that of the modified Black model in both pricing and hedging short sterling options. Using high‐frequency data, standard and hybrid ANNs are trained to generate option prices. The hybrid ANN is significantly superior to both the modified Black model and the standard ANN in pricing call and put options. Hedge ratios for hedging short sterling options positions using short sterling futures are produced using the standard and hybrid ANN pricing models, the modified Black model, and also standard and hybrid ANNs trained directly on the hedge ratios. The performance of hedge ratios from ANNs directly trained on actual hedge ratios is significantly superior to those based on a pricing model, and to the modified Black model. Copyright © 2012 John Wiley & Sons, Ltd.     

ROBUST BOUNDS FOR FORWARD START OPTIONS

We consider the problem of finding a model‐free upper bound on the price of a forward start straddle with payoff . The bound depends on the prices of vanilla call and put options with maturities T₁ and T₂ , but does not rely on any modeling assumptions concerning the dynamics of the underlying. The bound can be enforced by a super‐replicating strategy involving puts, calls, and a forward transaction. We find an upper bound, and a model which is consistent with T₁ and T₂ vanilla option prices for which the model‐based price of the straddle is equal to the upper bound. This proves that the bound is best possible. For lognormal marginals we show that the upper bound is at most 30% higher than the Black–Scholes price. The problem can be recast as finding the solution to a Skorokhod embedding problem with nontrivial initial law so as to maximize .     

期货套保基金服务中国农业的模式探讨

期货市场在规避农产品市场价格风险方面具有重要作用。文章从中国农业的实际出发,分析现有农产品期货服务农业模式存在的局限和不足,提出了农产品期货套保基金新模式。重点探讨了套保基金设立的方式、运作流程,分析其有利因素和制约因素,并提出了相应对策。     

Functional Itô calculus†

We extend some results of the Itô calculus to functionals of the current path of a process to reflect the fact that often the impact of randomness is cumulative and depends on the history of the process, not merely on its current value. We express the differential of the functional in terms of adequately defined partial derivatives to obtain an Itô formula. We develop an extension of the Feynman-Kac formula to the functional case and an explicit expression of the integrand in the Martingale Representation Theorem. We establish that under certain conditions, even path dependent options prices satisfy a partial differential equation in a local sense. We exploit this fact to find an expression of the price difference between two models and compute variational derivatives with respect to the volatility surface.     

Do firms lease to hedge? CEO risk-taking and operating lease intensity

Operating leases are used extensively for financing, but their ability to separate ownership and use also creates hedging opportunities. We investigate whether firms recognize such opportunities by examining the relation between chief executive officer (CEO) risk-taking incentives and the use of operating leases. Consistent with firms using operating leases to hedge, we find higher CEO risk-taking incentives lower operating lease intensity. To address endogeneity, we use the adoption of Statement of Financial Accounting Standards 123R as an exogenous shock to option compensation, dynamic panel generalized method of moments, simultaneous equations, and change regressions. Our results are robust to placebo and alternative tests.