Dynamic programming and mean-variance hedging with partial execution risk

In this paper I consider a hedging problem in an illiquid market where there is a risk that the hedger’s order to buy or sell the underlying asset may be executed only partially. In this setting, I find a mean-variance optimal hedging strategy by the dynamic programming method. The solution contains a new endogenous state variable representing the current position in the underlying. The exogenous coefficients in the solution are given by recursive formulas which can be calculated efficiently in Markov models. I illustrate effects of the partial execution risk in several examples.      

Hedging derivatives with model error

The current derivatives pricing technology enables users to hedge derivatives with the underlying asset or any other traded derivative. In theory, there is no reason to prefer one hedging instrument to another. However, given model errors, this is not true. Imposing some simple assumptions on the structure of model errors, this paper shows that to maximize hedging accuracy, there is an ordering to the hedging instruments utilized. Holding constant market illiquidities, one should always hedge first with ‘like’ derivatives, next with derivatives one layer down the hierarchy of derivatives, and lastly using the underlying.     

公司套期保值的决定因素——基于有色金属行业的经验研究

利用公司披露的数据,发现了样本公司套期保值决策与财务困境成本和流动性需求的高度相关性,同时也发现了与理论预期相反的证据,对于我国有色金属上市公司来说,协调投融资的工具并不是套期保值,而是其它;管理者持股激励机制有可能并未起到应有的作用。     

Hedging jump risk,expected returns and risk premia in jump-diffusion economies

This article presents a pure exchange economy that extends Rubinstein [Bell J. Econ. Manage. Sci., 1976, 7, 407–425] to show how the jump-diffusion option pricing model of Black and Scholes [J. Political Econ., 1973, 81, 637–654] and Merton [J. Financ. Econ., 1976, 4, 125–144] evolves in gamma jumping economies. From empirical analysis and theoretical study, both the aggregate consumption and the stock price are unknown in determining jumping times. By using the pricing kernel, we determine both the aggregate consumption jump time and the stock price jump time from the equilibrium interest rate and CCAPM (Consumption Capital Asset Pricing Model). Our general jump-diffusion option pricing model gives an explicit formula for how the jump process and the jump times alter the pricing. This innovation with predictable jump times enhances our analysis of the expected stock return in equilibrium and of hedging jump risks for jump-diffusion economies.     

Statistical properties of post-sample hedging effectiveness

This paper examines the mean and the variance of post-sample hedging effectiveness. It is shown that, the hedging effectiveness measure adopted in the current literature is a biased estimator of the true hedging effectiveness. Moreover, it underestimates the true hedging effectiveness. Empirical results base upon twenty-four futures markets for the error correction hedge ratio, however, suggest the bias is negligible. On the other hand, in some markets, the variance of the hedging effectiveness is too large for the estimate to be reliable.     

On the significance of the incremental returns from hedging international portfolios

This paper investigates whether hedging the currency risk associated with international portfolios diversified into established and emerging markets leads to significant incremental returns. From the empirical results, for the period August 1989 to December 1997, the ineffectiveness of hedging for generating superior returns could be explained by the low correlations among the observed markets and the presence of negative index/currency correlations in many assets. In the particular case of emerging markets, the predominance of positive index/currency correlations suggests that the currency risk could compound the risk posed by these markets beyond the power of a hedging strategy.     

规避股市系统性风险:股票指数期货的套期保值

随着我国股票市场发展规模的不断扩大,股票市场的投资风险也在加大,如何合理防范或者减少股票市场由于股价波动而给投资者或融资者带来的风险与损失已是摆在我们面前的重要课题。对于无法通过股票投资组合加以消除的系统性风险,我们可以通过股指期货的多头或空头套期保值功能来减少或加以防范。     

Exchange rate exposure among European firms: evidence from France, Germany and the UK

We investigate the pre-Euro exposure to exchange rate changes of large firms in the UK, France and Germany. We find that the exchange rate sensitivity is considerably stronger than previously thought. In all three countries, firms typically gain value when their local currency depreciates against the US dollar, yet most UK firms lose value when sterling depreciates against the European currency unit. We also document the existence of an intriguing intervalling effect in the measurement of exchange rate exposure, which suggests that share prices might exhibit a delayed response to information, and prevents us from making robust generalizations concerning other exchange rate sensitivities.