Technical paper/Hedging
Hedging valuation adjustment: fact and friction
Transaction costs’ impact on hedging can now be quantified
Machine learning hedge strategy with deep Gaussian process regression
An optimal hedging strategy for options in discrete time using a reinforcement learning technique
Funding adjustments in equity linear products
How tax asymmetries and Tobin tax affect the pricing of total return swaps
Quantifying model performance
Quality of replicating portfolio is used to measure performance of a model
A new dynamic hedging model with futures
This paper proposes a new econometric model for the estimation of optimal hedge ratios (HRs): the Kalman filter error-correction model (KF–ECM).
Hedging incentives for financial institutions
Using a simple model, this paper derives two results that provide guiding principles for hedging by, and capital regulation of, financial institutions.
Empirical analysis of oil risk-minimizing portfolios: the DCC–GARCH–MODWT approach
This paper strives to analyze hedging strategies between Brent oil and six other het- erogeneous assets – American ten-year bonds, US dollars, gold, natural gas futures, corn futures, and Europe, Australasia and Far East exchange-traded funds (EAFE- ETFs…
Currency risk in foreign currency accounts for small and medium-sized businesses
This paper estimates the currency exposure before and after the hedging of active foreign currency (FC) accounts, using stochastic models for spot exchange rates and cashflow movements.
The swap market Bergomi model
The combination of two popular volatility models sharpens the hedging of exotic rate derivatives
Stay ahead of the fixing lag
The price of fund-linked derivatives depends on the fixing lag of the underlying funds
Variance optimal hedging with application to electricity markets
In this paper, the author uses the mean–variance hedging criterion to value contracts in incomplete markets.
A new approach to evaluating the cost-efficiency of complex hedging strategies: an application to electricity price–volume quanto contracts
In this paper, the authors propose a new hedging assessment model, the economic value of the incremental expected shortfall (EVIES), from a cost-efficiency perspective.
Parameter variation and the components of natural gas price volatility
This paper models natural gas returns explicitly, allowing for market participants to learn over time and to react differently to present changes in economic variables. This learning and adaptation, and the attendant parameter uncertainty, constitutes…
Hedging of options in the presence of jump clustering
This paper analyzes the efficiency of hedging strategies for stock options in the presence of jump clustering.
Balance-sheet interest rate risk: a weighted Lp approach
In this paper, the authors introduce a new interest rate risk measure that is a product of two factors: one related to the distance between assets and liabilities in the Lp-space of financial instruments, and the other linked to the performance of the…
Managing adverse temperature conditions through hybrid financial instruments
This paper proposes temperature-based risk management using hybrid financial instruments built on weather derivatives.
On the spatial hedging effectiveness of German wind power futures for wind power generators
In this paper, the authors consider wind power utilization in thirty-one different locations in Germany.
Applied risk management series: gas storage valuation strategies
A look at the valuation of gas storage facilities and show how a deeper analysis of the value formation can offer insights for P&L optimisation and risk management
Optimising VAR and terminating Arnie-VAR
Albanese, Caenazzo and Syrkin show how full-revaluation VAR is more accurate and robust than sensitivity-based VAR measures
Enhancing enterprise value by trading options
This paper considers the problem of enhancing an investment activity by regularly adding an option trade to the portfolio mix and presented results for the single underlier of the S&P 500 index, with the underlying activity being either long the index or…
Asset price bubbles and risk management
The purpose of this paper is to review the literature on asset price bubbles to study the impact that the existence of bubbles has on standard risk management methodologies.
Risk and abnormal returns in markets for congestion revenue rights
This paper develops a novel methodology for estimating the systematic risk of individual financial transmission rights and detecting the presence of abnormal returns among these financial instruments.
Stress hedging in portfolio construction
Bilgili, Ferconi and Ulitsky propose a constrained portfolio optimisation approach incorporating stress scenarios
Efficient pricing and super-replication of corridor variance swaps and related products
This paper proposes a method for overhedging weighted variance using only a finite number of maturities.