Managing Derivative Exposure
We present an approach to derivative exposure management based on subjective and implied probabilities. We suggest to maximize the valuation difference subject to risk constraints and propose a class of risk measures derived from the subjective distribution. We illustrate this process with specific examples for the two and three dimensional case. In these cases the optimization can be performed graphically.
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- Ulrich Kirchner, 2010. "A Subjective and Probabilistic Approach to Derivatives," Papers 1001.1616, arXiv.org.
- Ulrich Kirchner, 2009. "Market Implied Probability Distributions and Bayesian Skew Estimation," Papers 0911.0805, arXiv.org.
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