W consider a firm that invests in capacity under demand uncertainty and thus faces two related but distinct types of risk: mismatch between capacity and demand and profit variability. Whereas mismatch risk can be mitigated with greater operational flexibility, profit variability can be reduced through financial hedging. We show that the relationship between these two risk mitigating strategies ...

In the Black-Cox model, a firm makes default when its value hits an exponential barrier. Here, we propose an hybrid model that generalizes this framework. The default intensity can take two different values and switches when the firm value crosses the barrier. Of course, the intensity level is higher below the barrier. We get an analytic formula for the Laplace transform of the default time and...

Readers may make verbatim copies of this document for non-commercial purposes by any means, provided that this copyright notice appears on all such copies. Practitioners Abstract The optimal hedging model has become the standard theoretical model of normative hedging behavior due to its intuitive tradeoff of expected return with risk, its efficient use of information and its easy implementation...

Readers may make verbatim copies of this document for non-commercial purposes by any means, provided that this copyright notice appears on all such copies. Practitioners Abstract The optimal hedging model has become the standard theoretical model of normative hedging behavior due to its intuitive tradeoff of expected return with risk, its efficient use of information and its easy implementation...

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...

We consider a production control problem in a manufacturing system with failure-prone machines and a constant demand rate. The objective is to minimise a discounted inventory holding and backlog cost over an infinite planning horizon. The availability of the machines is improved through a corrective maintenance strategy. The decision variables are the production and the machine repair rates, wh...

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...