On cross hedging, BSDE and Malliavin’s calculus∗
نویسندگان
چکیده
Basis = price of hedged asset-price of hedging instrument problem of basis risk: uncertainties of processes describing the evolution of prices of asset and hedging instrument not identical, only highly correlated Example 1: weather derivatives hedged asset: heating oil sales, hedging instrument: HDD derivative HDD derivative: contract paying a premium in case HDD above a critical threshold Example 2: commodity markets hedged asset: power spot price, hedging instrument: power futures futures: contract to deliver amount of commodity at prefixed price hedge spot price fluctuations on time slots not coinciding with futures delivery dates ON CROSS HEDGING, BSDE AND MALLIAVIN'S CALCULUS 3 1.2 a toy example Aim: show problems with hedging basis risk, given very high correlation Abbildung 1: Daily Spot Prices airline company, hedged asset: jet fuel spot price, hedging instrument: heating oil futures diagram indicates high correlation between jet fuel spot price and heating oil spot price
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