In the Black-Cox model, a firm makes default when its value hits an exponential barrier. Here, we propose an hybrid model that generalizes this framework. The default intensity can take two different values and switches when the firm value crosses the barrier. Of course, the intensity level is higher below the barrier. We get an analytic formula for the Laplace transform of the default time and...

Readers may make verbatim copies of this document for non-commercial purposes by any means, provided that this copyright notice appears on all such copies. Practitioners Abstract The optimal hedging model has become the standard theoretical model of normative hedging behavior due to its intuitive tradeoff of expected return with risk, its efficient use of information and its easy implementation...

Readers may make verbatim copies of this document for non-commercial purposes by any means, provided that this copyright notice appears on all such copies. Practitioners Abstract The optimal hedging model has become the standard theoretical model of normative hedging behavior due to its intuitive tradeoff of expected return with risk, its efficient use of information and its easy implementation...

Accurately quantifying and robustly hedging options embedded in the guarantees of variable annuities is a crucial task for insurance companies in preventing excessive liabilities. Due to sensitivities of the benefits to tails of the account value distribution, a simple Black-Scholes model is inadequate. A model which realistically describes the real world price dynamics over a long time horizon...

Managerial financial fraud is estimated in the billions of dollars annually in the United States. Since fraud includes obfuscation, misdirection, and fabrication, this study proposes using deception theory as a means of detecting fraud in textual portions of financial statements (10K). A corpus of 101 fraudulent 10Ks was collected from the Securities and Exchange Commission along with 101 match...

We examine whether hedging effectiveness is affected by asymmetry in the return distribution by applying tail specific metrics to compare the hedging effectiveness of short and long hedgers using crude oil futures contracts. The metrics used include Lower Partial Moments (LPM), Value at Risk (VaR) and Conditional Value at Risk (CVAR). Comparisons are applied to a number of hedging strategies in...

This paper investigates corporate hedging activities in the Australian gold mining industry. We find that the Australian companies in 1997 are more actively involved in gold derivative markets than their counterparts in North America in 1993. This may suggest a general risk-averse attitude among the Australian managers when comparing with the North American managers. We also find that corporate...

This paper considers the multiperiod hedging decision in a framework of mean-reverting spot prices and unbiased futures markets. The task is to determine the optimal hedging path, i.e., the sequence of positions in futures contracts with the objective of minimizing the variance of an uncertain future cash flow. The model is used to illustrate both hedging using a matchedmaturity futures contrac...

A reservoir operation model of Mun Bon and Lam Chae reservoirs was developed to simulate reservoir operation using a hedging policy. A variety of common hedging forms was specified, including one-point hedging, two-point hedging and zone-based hedging. The simulated results were compared with the standard operating policy and probability based rule curve. The percentage of failure frequency, av...

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 Exam...