Valuation and Hedging in Incomplete Market [sic] PDF Download

Author: Jeremie Ouaki
Publisher:
ISBN:
Category : Hedging (Finance)
Languages : en
Pages : 88

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Author: Dan Chen
Publisher:
ISBN:
Category :
Languages : en
Pages :

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The thesis focuses on valuation and hedging problems when the market is incomplete. The first essay considers the quadratic hedging strategy. We propose a generalized quadratic hedging strategy which can balance a short-term risk (additional cost) with a long-term risk (hedging errors). The traditional quadratic hedging strategies, i.e. self-financing strategy and risk-minimization strategy, can be seen as special cases of the generalized quadratic hedging strategy. This is applied to the insurance derivatives market. The second essay compares parametric and nonparametric measure-changing techniques. The essay discusses three pricing approaches: pricing via Esscher measure, via calibration and via nonparametric risk-neutral density; and empirically compares the performance of the three approaches in the metal futures markets. The last essay establishes the concept of stochastic volatility of volatility and proposes several estimation methods.

Author:
Publisher:
ISBN:
Category :
Languages : en
Pages :

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Author: Hirbod Assa
Publisher:
ISBN:
Category :
Languages : en
Pages : 41

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From January 2016, all insurance companies that are regulated within Solvency II framework will have to value their asset and liabilities using a market-consistent method. This paper studies market-consistent and sub-consistent valuations in incomplete financial markets with two types (type I and II) of market consistency. While market consistency of type I holds under fairly weak assumptions, the type II consistency, which is the usual definition of market consistency in the literature, holds only if the market prices are linear for fully hedged assets. We also characterize the market consistent and sub-consistent evaluators in several different ways. We discuss how market-consistent and sub-consistent valuations can be regarded as a robust approach to hedging and pricing in the presence of market imperfections such as market incompleteness and frictions.

Author: Andrea Pascucci
Publisher: Springer Science & Business Media
ISBN: 8847025389
Category : Mathematics
Languages : en
Pages : 294

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With the Bologna Accords a bachelor-master-doctor curriculum has been introduced in various countries with the intention that students may enter the job market already at the bachelor level. Since financial Institutions provide non negligible job opportunities also for mathematicians, and scientists in general, it appeared to be appropriate to have a financial mathematics course already at the bachelor level in mathematics. Most mathematical techniques in use in financial mathematics are related to continuous time models and require thus notions from stochastic analysis that bachelor students do in general not possess. Basic notions and methodologies in use in financial mathematics can however be transmitted to students also without the technicalities from stochastic analysis by using discrete time (multi-period) models for which general notions from Probability suffice and these are generally familiar to students not only from science courses, but also from economics with quantitative curricula. There do not exists many textbooks for multi-period models and the present volume is intended to fill in this gap. It deals with the basic topics in financial mathematics and, for each topic, there is a theoretical section and a problem section. The latter includes a great variety of possible problems with complete solution.

Author: Lorenzo Cornalba
Publisher:
ISBN:
Category :
Languages : en
Pages : 11

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Value adjustment of uncollateralized trades is determined within a risk-neutral pricing framework. When hedging such trades, investors cannot freely trade protection on their own name, thus facing an incomplete market. This fact is reflected in the non-uniqueness of the pricing measure, which is only constrained by the values of the hedging instruments tradable by the investor. Uncollateralized trades should then be considered not as derivatives but as new primary assets in the investor's economy. Different choices of the risk-neutral measure correspond to different completions of the market, based on the risk appetite of the investor, leading to different levels of value adjustments. We recover, in limiting cases, results well known in the literature.

Author: Anne Balter
Publisher:
ISBN:
Category :
Languages : en
Pages : 31

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We search for a trading strategy and the associated robust price of unhedgeable assets in incomplete markets under the acknowledgement of model uncertainty. Our set-up is that we postulate an agent who wants to maximise the expected surplus by choosing an optimal investment strategy. Furthermore, we assume that the agent is concerned about model misspecification. This robust optimal control problem under model uncertainty leads to (i) risk-neutral pricing for the traded risky assets, and (ii) adjusting the drift of the nontraded risk drivers in a conservative direction. The direction depends on the agent's long or short position, and the adjustment that ensures a robust strategy leads to what is known as "actuarial" or "prudential" pricing. Our results extend to a multivariate setting. We prove existence and uniqueness of the robust price in an incomplete market via the link between the semilinear partial differential equation and backward stochastic differential equations.

Author: Simon MacNair
Publisher:
ISBN:
Category :
Languages : en
Pages : 124

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Author: Christian Hipp
Publisher:
ISBN: 9780734013897
Category : Equilibrium (Economics)
Languages : en
Pages : 30

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Author: Kose John
Publisher:
ISBN:
Category : Investments
Languages : en
Pages : 36

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