We develop a flexible discrete-time hedging methodology that minimizes the expected value of any desired penalty function of the hedging error within a general regimeswitching framework. A numerical algorithm based on backward recursion allows for the sequential construction of an optimal hedging strategy. Numerical experiments comparing this and other methodologies show a relative expected pen...

This paper sets out to answer a fundamental question: ‘How do tutors hedge their comments using modal verbs?’ A total of 126 feedback reports comprising 35,941 words were collected from two Humanities departments in a UK higher education institution. Although this is a relatively small corpus, it is a specialised corpus. The research focuses on a specific genre – written feedback –, thus the fi...

In this paper we review the hedging of interest rate derivatives priced under a risk-neutral measure, and we compute self-financing hedging strategies for various derivatives using the Clark-Ocone formula.

Hedging strategies in bond markets are computed by martingale representation and the choice of a suitable of numeraire, based on the Clark-Ocone formula in a model driven by the dynamics of bond prices. Applications are given to the hedging of swaptions and other interest rate derivatives and we compare our approach to delta hedging when the underlying swap rate is modeled by a diffusion process.

In the current financial crisis, promoting rapid developments of gold industry, ensuring healthy operations of national economy, and actively developing the gold futures market are very important. Functioning of the gold futures market will determine the gold market maturity and integrity. Risk transfer is one of the two basic functions of futures market. The risk transfer function is realized ...

We study how hedging a ects rm value and real investment activity. We obtain exogenous variation in access to e ective hedging instruments from the unexpected breakdown in the correlation of Canadian oil prices with the benchmark oil price used in NYMEX hedging contracts. Using a di erence-in-di erences framework we compare Canadian oil producers to their U.S. counterparts, who maintain access ...

Recent trends in many U.S. states are to deregulate their electric power industry and markets with the desire to provide a more consumer-friendly environment than under regulation. However, deregulation also creates uncertainty and risk. It is this risk that we wish to address and contain. In this thesis, we review recently developed stochastic models of physical and nancial aspects of deregula...

We consider the hedging of options when the price of the underlying asset is always exposed to the possibility of jumps of random size. Working in a single factor Markovian setting, we derive a new spanning relation between a given option and a continuum of shorter-term options written on the same asset. In this portfolio of shorter-term options, the portfolio weights do not vary with the under...