Equity, commodity and interest rate volatility derivatives
A new methodology to construct synthetic volatility derivatives is presented. The underlying asset price process is very general, since equity, commodities and interest rates are included. The focus is on volatility swaps and volatility swap options, but much more derivatives may be considered. The proposed methods optimize the conditional value at risk of the non-hedged risk, and yields both bid and ask prices, as well as optimal hedging strategies for both purchases and sales. Upper bounds for the broker capital losses under very negative scenarios are given. Numerical experiments are presented so as to illustrate the performance in practice of this new approach.
|Date of creation:||2013|
|Contact details of provider:|| Web page: http://portal.uc3m.es/portal/page/portal/indem|
References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- R. Rockafellar & Stan Uryasev & Michael Zabarankin, 2006. "Generalized deviations in risk analysis," Finance and Stochastics, Springer, vol. 10(1), pages 51-74, 01.
- Peter Carr & Katrina Ellis & Vishal Gupta, 1998. "Static Hedging of Exotic Options," Journal of Finance, American Finance Association, vol. 53(3), pages 1165-1190, 06.
- Balbás, Alejandro & Balbás, Raquel & Garrido, José, 2010. "Extending pricing rules with general risk functions," European Journal of Operational Research, Elsevier, vol. 201(1), pages 23-33, February.
- Breeden, Douglas T & Litzenberger, Robert H, 1978. "Prices of State-contingent Claims Implicit in Option Prices," The Journal of Business, University of Chicago Press, vol. 51(4), pages 621-651, October.
- Windcliff, H. & Forsyth, P.A. & Vetzal, K.R., 2006. "Pricing methods and hedging strategies for volatility derivatives," Journal of Banking & Finance, Elsevier, vol. 30(2), pages 409-431, February.
- Hull, John & White, Alan, 1990. "Pricing Interest-Rate-Derivative Securities," Review of Financial Studies, Society for Financial Studies, vol. 3(4), pages 573-592.
- Philippe Artzner & Freddy Delbaen & Jean-Marc Eber & David Heath, 1999. "Coherent Measures of Risk," Mathematical Finance, Wiley Blackwell, vol. 9(3), pages 203-228.
- Ogryczak, Wlodzimierz & Ruszczynski, Andrzej, 1999.
"From stochastic dominance to mean-risk models: Semideviations as risk measures,"
European Journal of Operational Research,
Elsevier, vol. 116(1), pages 33-50, July.
- W. Ogryczak & A. Ruszczynski, 1997. "From Stochastic Dominance to Mean-Risk Models: Semideviations as Risk Measures," Working Papers ir97027, International Institute for Applied Systems Analysis.
- Peter Carr & Roger Lee, 2009. "Volatility Derivatives," Annual Review of Financial Economics, Annual Reviews, vol. 1(1), pages 319-339, November.
- Schwartz, Eduardo S, 1997. " The Stochastic Behavior of Commodity Prices: Implications for Valuation and Hedging," Journal of Finance, American Finance Association, vol. 52(3), pages 923-973, July.
- Sara Biagini & Marco Frittelli, 2005. "Utility maximization in incomplete markets for unbounded processes," Finance and Stochastics, Springer, vol. 9(4), pages 493-517, October.
- Gibson, Rajna & Schwartz, Eduardo S, 1990. " Stochastic Convenience Yield and the Pricing of Oil Contingent Claims," Journal of Finance, American Finance Association, vol. 45(3), pages 959-976, July.
- Alejandro Balbás & Beatriz Balbás & Raquel Balbás, 2013. "Good deals in markets with friction," Quantitative Finance, Taylor & Francis Journals, vol. 13(6), pages 827-836, May.
- Jaksa Cvitanic & Fernando Zapatero, 2004. "Introduction to the Economics and Mathematics of Financial Markets," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262532654.
- Ho, Thomas S Y & Lee, Sang-bin, 1986. " Term Structure Movements and Pricing Interest Rate Contingent Claims," Journal of Finance, American Finance Association, vol. 41(5), pages 1011-1029, December. Full references (including those not matched with items on IDEAS)
When requesting a correction, please mention this item's handle: RePEc:cte:idrepe:id-13-02. 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: (Ana Poveda)
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.