Related papers: Leverage effect in energy futures
In this paper we study the pricing of exchange options when underlying assets have stochastic volatility and stochastic correlation. An approximation using a closed-form approximation based on a Taylor expansion of the conditional price is…
This study utilised the dynamics of five time-varying models to estimate six essential features of financial return volatility that are relevant for robust risk management. These features include pronounced persistence, mean reversion,…
Energy markets and the associated energy futures markets play a crucial role in global economies. We investigate the statistical properties of the recurrence intervals of daily volatility time series of four NYMEX energy futures, which are…
We build a simple model of leveraged asset purchases with margin calls. Investment funds use what is perhaps the most basic financial strategy, called "value investing", i.e. systematically attempting to buy underpriced assets. When funds…
We consider insurance derivatives depending on an external physical risk process, for example a temperature in a low dimensional climate model. We assume that this process is correlated with a tradable financial asset. We derive optimal…
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…
This paper examines the volatility and covariance dynamics of cash and futures contracts that underlie the Optimal Hedge Ratio (OHR) across different hedging time horizons. We examine whether hedge ratios calculated over a short term…
Risk aversion is a key element of utility maximizing hedge strategies; however, it has typically been assigned an arbitrary value in the literature. This paper instead applies a GARCH-in-Mean (GARCH-M) model to estimate a time-varying…
Peters (2011a) defined an optimal leverage which maximizes the time-average growth rate of an investment held at constant leverage. It was hypothesized that this optimal leverage is attracted to 1, such that, e.g., leveraging an investment…
Leveraged ETFs (L-ETFs) are exchange-traded funds that achieve price movements several times greater than an index by holding index-linked futures such as Nikkei Stock Average Index futures. It is known that when the price of an L-ETF…
In this paper, we contribute to the literature on energy market co-movement by studying its dynamics in the time-frequency domain. The novelty of our approach lies in the application of wavelet tools to commodity market data. A major part…
In this paper we find tight sufficient conditions for the continuity of the value of the utility maximization problem from terminal wealth with respect to the convergence in distribution of the underlying processes. We also establish a weak…
This work adopts a novel approach to determine the risk and return of crude oil stocks by employing Arbitrage Pricing Theory (APT) and Quantile Regression (QR).The APT identifies the underlying risk factors likely to impact crude oil…
We study the dynamics of the linear and non-linear serial dependencies in financial time series in a rolling window framework. In particular, we focus on the detection of episodes of statistically significant two- and three-point…
Financial markets for Liquified Natural Gas (LNG) are an important and rapidly-growing segment of commodities markets. Like other commodities markets, there is an inherent spatial structure to LNG markets, with different price dynamics for…
Based on a criterion of mathematical simplicity and consistency with empirical market data, a stochastic volatility model has been obtained with the volatility process driven by fractional noise. Depending on whether the stochasticity…
Trading pressure from one asset can move the price of another, a phenomenon referred to as cross impact. Using tick-by-tick data spanning 5 years for 500 assets listed in the United States, we identify the features that make cross-impact…
The coupled nonlinear volatility and option pricing model presented recently by Ivancevic is investigated, which generates a leverage effect, i.e., stock volatility is (negatively) correlated to stock returns, and can be regarded as a…
We study in details the skew of stock option smiles, which is induced by the so-called leverage effect on the underlying -- i.e. the correlation between past returns and future square returns. This naturally explains the anomalous…
In this paper we propose a novel pricing-hedging framework for volatility derivatives which simultaneously takes into account rough volatility and volatility jumps. Our model directly targets the instantaneous variance of a risky asset and…