Related papers: Do Investors Hedge Against Green Swans? Option-Imp…
With electric power infrastructure increasingly susceptible to impacts from climate-driven natural disasters, there is an increasing need for optimization algorithms that determine where to harden the power grid. Prior work has primarily…
We propose a deep hedging framework for index option portfolios, grounded in a realistic market simulator that captures the joint dynamics of S&P 500 returns and the full implied volatility surface. Our approach integrates surface-informed…
We uncover a close link between outside options and risk attitude: when a decision-maker gains access to an outside option, her behaviour becomes less risk-averse, and conversely, any observed decrease of risk-aversion can be explained by…
Options are contingent claims regarding the value of underlying assets. The Black-Scholes formula provides a road map for pricing these options in a risk-neutral setting, justified by a delta hedging argument in which countervailing…
We model investor heterogeneity using different required returns on an investment and evaluate the impact on the valuation of an investment. By assuming no disagreement on the cash flows, we emphasize how risk preferences in particular, but…
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…
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…
In this note, we develop stock option price approximations for a model which takes both the risk o default and the stochastic volatility into account. We also let the intensity of defaults be influenced by the volatility. We show that it…
The cryptocurrency market is volatile, non-stationary and non-continuous. Together with liquid derivatives markets, this poses a unique opportunity to study risk management, especially the hedging of options, in a turbulent market. We study…
We identify a new type of risk, common firm-level investor fears, from commonalities within the cross-sectional distribution of individual stock options. We define firm-level fears that link with upward price movements as good fears, and…
Earnings announcements (EADs) are corporate events that provide investors with fundamentally important information. The prospect of stock price rises may also contribute to EADs increased volatility. Using data on extremely 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…
According to the volatility feedback effect, an unexpected increase in squared volatility leads to an immediate decline in the price-dividend ratio. In this paper, we consider the properties of stock price dynamics and option valuations…
In informationally efficient financial markets, option prices and this implied volatility should immediately be adjusted to new information that arrives along with a jump in underlying's return, whereas gradual changes in implied volatility…
We propose a novel approach to infer investors' risk preferences from their portfolio choices, and then use the implied risk preferences to measure the efficiency of investment portfolios. We analyze a dataset spanning a period of six…
The option is a financial derivative, which is regularly employed in reducing the risk of its underlying securities. However, investing in option is still risky. Such risk becomes much severer for speculators who utilize option as a means…
We present a dynamic hedging scheme for S&P 500 options, where rebalancing decisions are enhanced by integrating information about the implied volatility surface dynamics. The optimal hedging strategy is obtained through a deep policy…
How do macro-financial shocks affect investor behavior and market dynamics? Recent evidence on experience effects suggests a long-lasting influence of personally experienced outcomes on investor beliefs and investment, but also significant…
This paper moves beyond aggregate measures of retail intensity to explore investment horizon as a distinguishing feature of earnings-related return patterns. Using self-reported holding periods from StockTwits (2010-2021), we observe that…
Natural hedging allows life insurers to manage longevity risk internally by offsetting the opposite exposures of life insurance and annuity liabilities. Although many studies have proposed natural hedging strategies under different…