We consider the hedging of options when the price of the underlying asset is always exposed to the possibility of jumps of random size. Working in a single factor Markovian setting, we derive a new spanning relation between a given option and a continuum of shorter-term options written on the same asset. In this portfolio of shorter-term options, the portfolio weights do not vary with the under...

HRUŠKA JURAJ. 2015. Delta-gamma-theta Hedging of Crude Oil Asian Options. Acta Universitatis Agriculturae et Silviculturae Mendelianae Brunensis, 63(6): 1897–1903. Since Black-Scholes formula was derived, many methods have been suggested for vanilla as well as exotic options pricing. More of investing and hedging strategies have been developed based on these pricing models. Goal of this paper i...

This paper investigates the hedging effectiveness of the Standard & Poor’s (S&P) 500 stock index futures contract using weekly settlement prices for the period July 3, 1992 to June 30, 2002. Particularly, it focuses on three areas of interest: the determination of the appropriate model for estimating a hedge ratio that minimizes the variance of returns; the hedging effectiveness and the stabili...

There are two competing paradigms for modeling credit risk: the structural and reduced form models. This paper applies our knowledgeof creditmarket equilibriumto thisdebate.Weshowthat credit markets have asymmetric information in the borrowing and lending relationshipwhich influenceequilibriumprices. Reduced formmodels are consistent with asymmetric equilibrium models, but structural models are...

Continuously Paying Options (CPOs) form a very natural class of derivatives for hedging risks coming from adverse movements of a continuously traded asset. We study the rate of convergence of CPOs evaluated under the binomial tree scheme when the payout function φ is piecewise C subject to some boundedness conditions. We show that if φ is continuous, the rate of convergence is n−1 while it is n...

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The appropriate use of hedging in scientific discourse is a vital skill for writers presenting their knowledge in an academic discourse community and much work has therefore been done on this relevant feature, especially on its use in the rhetoric of specialized texts in English. Some authors believe that there are considerable differences in styles of writing in particular cultures (e.g., see ...

We explore optimal hedge ratios and hedging effectiveness for the German electricity market. Given the increasing attention that wavelets received in the financial market, we concentrate on the investigation of the relationship, covariance/coherence evolution and hedge ratio analysis, on a time-frequency-scale approach (discrete and continuous), between electricity spot and futures. Simpler app...

In this paper, we show that although minimum-variance hedging unambiguously reduces the standard deviation of portfolio returns, it tends to increase portfolio kurtosis and consequently the effectiveness of hedging in terms of a more general measure of risk such as VaR is uncertain. We compare the reduction in standard deviation with the reduction in 99% VaR for thirteen cross-hedged currency p...

Organisms use various strategies to cope with fluctuating environmental conditions. In diversified bet-hedging, a single genotype exhibits phenotypic heterogeneity with the expectation that some individuals will survive transient selective pressures. To date, empirical evidence for bet-hedging is scarce. Here, we observe that individual Drosophila melanogaster flies exhibit striking variation i...