Optimal Weak Static Hedging of Equity and Credit Risk Using Derivatives
We develop a generic method for constructing a weak static minimum variance hedge for a wide range of derivatives that may involve optimal exercise features or contingent cash flow streams to provide a hedge along a sequence of future hedging dates. The optimal hedge is constructed using a portfolio of pre-selected hedge instruments, which could be derivatives with different maturities. The hedge portfolio is weakly static in that it is initiated at time zero, does not involve intermediate re-balancing, but hedges may be gradually unwound over time. We study the static hedging of a convertible bond to demonstrate the method by an example that involves equity and credit risk. We investigate the robustness of the hedge performance with respect to parameter and model risk by numerical experiments.
If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.
Volume (Year): 17 (2010)
Issue (Month): 1 ()
|Contact details of provider:|| Web page: http://www.tandfonline.com/RAMF20|
|Order Information:||Web: http://www.tandfonline.com/pricing/journal/RAMF20|
When requesting a correction, please mention this item's handle: RePEc:taf:apmtfi:v:17:y:2010:i:1:p:1-28. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Chris Longhurst)
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.