In bet hedging, organisms sacrifice short-term success to reduce the long-term variance in success. Delayed germination is the classic example of bet hedging, in which a fraction of seeds remain dormant as a hedge against the risk of complete reproductive failure. Here, we investigate the adaptive nature of delayed germination as a bet hedging strategy using long-term demographic data on Sonora...

One of the most successful approaches to option hedging with transaction costs is the utility based approach, pioneered by Hodges and Neuberger (1989). Judging against the best possible tradeoff between the risk and the costs of a hedging strategy, this approach seems to achieve excellent empirical performance. However, this approach has one major drawback that prevents the broad application of...

This paper presents hedging strategies for European and exotic options in a Lévy market. By applying Taylor's theorem, dynamic hedging portfolios are constructed under different market assumptions, such as the existence of power jump assets or moment swaps. In the case of European options or baskets of European options, static hedging is implemented. It is shown that perfect hedging can be achi...

Using a result in Angelini and Herzel (2009a), we measure, in terms of variance, the cost of hedging a contingent claim when the hedging portfolio is re-balanced at a discrete set of dates. We analyze the dependence of the variance of the hedging error on the skewness and kurtosis as modeled by a Normal Inverse Gaussian model. We consider two types of strategies, the standard Black-Scholes Delt...

We present a method of optimal hedging and pricing of equity-linked life insurance products in an incomplete discrete-time financial market. A pure endowment life insurance contract with guarantee is used as an example. The financial market incompleteness is caused by the assumption that the underlying risky asset price ratios are distributed in a compact interval, generalizing the assumptions ...

This paper examines the volatility and covariance dynamics of cash and futures contracts that underlie the Optimal Hedge Ratio (OHR) across different hedging time horizons. We examine whether hedge ratios calculated over a short term hedging horizon can be scaled and successfully applied to longer term horizons. We also test the equivalence of scaled hedge ratios with those calculated directly ...

We use asymptotic analysis to derive the optimal hedging strategy for an option portfolio hedged using an imperfectly correlated hedging asset with small transaction costs, both fixed per trade and proportional to the value traded. In special cases we opbtain explicit formulae. The hedging strategy involves holding a position in the hedging asset whose value lies between two bounds, which are i...

This paper examines the effect of the maturity of the futures contact used as the hedging instrument on the effectiveness of futures hedging. For this purpose, daily and monthly data on the WTI crude oil futures and spot prices are used to work out the hedge ratios and the measures of hedging effectiveness resulting from using the near-month contract and those resulting from the use of a more d...

We consider the problem of dynamically hedging the profits of a corporation when these profits are correlated with returns in the financial markets. In particular, we consider the general problem of simultaneously optimizing over both the operating policy and the hedging strategy of the corporation. We discuss how different informational assumptions give rise to different types of hedging and s...

a r t i c l e i n f o In this paper, we explore the impact of investor time-horizon on an optimal downside hedged energy portfolio. The optimal heating oil hedge ratio is first calculated for a variety of downside risk objective functions at different time-horizons using the wavelet transform. Next, associated hedging effectiveness is contrasted for a range of risk metrics, with all metrics sho...