Accurately quantifying and robustly hedging options embedded in the guarantees of variable annuities is a crucial task for insurance companies in preventing excessive liabilities. Due to sensitivities of the benefits to tails of the account value distribution, a simple Black-Scholes model is inadequate. A model which realistically describes the real world price dynamics over a long time horizon...

Managerial financial fraud is estimated in the billions of dollars annually in the United States. Since fraud includes obfuscation, misdirection, and fabrication, this study proposes using deception theory as a means of detecting fraud in textual portions of financial statements (10K). A corpus of 101 fraudulent 10Ks was collected from the Securities and Exchange Commission along with 101 match...

We examine whether hedging effectiveness is affected by asymmetry in the return distribution by applying tail specific metrics to compare the hedging effectiveness of short and long hedgers using crude oil futures contracts. The metrics used include Lower Partial Moments (LPM), Value at Risk (VaR) and Conditional Value at Risk (CVAR). Comparisons are applied to a number of hedging strategies in...

We study the numerical solution of the Greeks of Asian options. In particular, we derive a close form solution of Δ of Asian geometric option and use this analytical form as a control to numerically calculate Δ of Asian arithmetic option, which is known to have no explicit close form solution. We implement our proposed numerical method and compare the standard error with other classical varianc...

In an economy in which investors with different time preferences have heterogeneous beliefs about a dividend’s mean growth rate, the volatility of the stock that claims the dividend is stochastic in equilibrium. The prices of the vanilla European options that are written on this stock admit closed-form solutions, hence their hedging deltas. The implied volatility surface exhibits the observed p...

This paper investigates corporate hedging activities in the Australian gold mining industry. We find that the Australian companies in 1997 are more actively involved in gold derivative markets than their counterparts in North America in 1993. This may suggest a general risk-averse attitude among the Australian managers when comparing with the North American managers. We also find that corporate...

This paper considers the multiperiod hedging decision in a framework of mean-reverting spot prices and unbiased futures markets. The task is to determine the optimal hedging path, i.e., the sequence of positions in futures contracts with the objective of minimizing the variance of an uncertain future cash flow. The model is used to illustrate both hedging using a matchedmaturity futures contrac...

A reservoir operation model of Mun Bon and Lam Chae reservoirs was developed to simulate reservoir operation using a hedging policy. A variety of common hedging forms was specified, including one-point hedging, two-point hedging and zone-based hedging. The simulated results were compared with the standard operating policy and probability based rule curve. The percentage of failure frequency, av...

Basis = price of hedged asset-price of hedging instrument problem of basis risk: uncertainties of processes describing the evolution of prices of asset and hedging instrument not identical, only highly correlated Example 1: weather derivatives hedged asset: heating oil sales, hedging instrument: HDD derivative HDD derivative: contract paying a premium in case HDD above a critical threshold Exam...

ABSTRACT In this paper, under constraint of delta-strategy and by importing another related risky asset to compose a hedging portfolio comprising the underlying asset and riskless asset(the Bond). Firstly, we excellently devise a dynamic hedging program for contingent claims; and then, according to Principle of Dynamic Programming and by taking advantage of backward recursion technique, at each...