The Skew Pattern of Implied Volatility in the DAX Index Options Market
AbstractThis paper aims to analyze the reasons why insurance companies make the decision to hedge their corporate risk through derivatives, and to identify the variables that determine hedging volume in the context of the agency theory and maximization of firm value. The empirical study is based on data provided by 28 Spanish life insurers. Apart from being a pioneering work in the Spanish insurance industry, this paper also includes several variables that have not been taken into account in previous studies. The results indicate that hedging decision and volume are positively related to the company’s size, leverage and interest rate exposure. We also find that the type of product is important in the hedging decision. Finally, companies that use derivatives have a great return on assets that suggest a relationship between hedging decision and value creation.
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Bibliographic InfoArticle provided by SKEMA Business School in its journal Frontiers in Finance and Economics.
Volume (Year): 8 (2011)
Issue (Month): 1 (April)
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Web page: http://www.ffe.esc-lille.com
derivatives; risk management; value creation; life insurer; logit; Tobit.;
Other versions of this item:
- Silvia Muzzioli, 2009. "The skew pattern of implied volatility in the DAX index options market," Department of Economics 0617, University of Modena and Reggio E., Faculty of Economics "Marco Biagi".
- Silvia Muzzioli, 2009. "The skew pattern of implied volatility in the DAX index options market," Centro Studi di Banca e Finanza (CEFIN) (Center for Studies in Banking and Finance) 09122, Universita di Modena e Reggio Emilia, Facoltà di Economia "Marco Biagi".
- G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
- G22 - Financial Economics - - Financial Institutions and Services - - - Insurance; Insurance Companies; Actuarial Studies
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