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Derivatives Related Scholarly Compositions
See also:
Derivatives
Related News,
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Books,
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Are Corporations Reducing or
Taking Risks with Derivatives?
by Ludger Hentschel & S.P. Kothari
February 17, 2001
Abstract
Public discussion about corporate use of derivatives focuses on
whether firms use derivatives to reduce or increase firm risk.
In contrast, empirical, academic studies of corporate
derivates-use take it for granted that firms hedge with
derivatives. Using data from financial statements of 425 large
U.S. corporations, we investigate whether firms systematically
reduce or increase their riskiness with derivatives...
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Are Interest Rate Derivatives
Spanned by the Term Structure of Interest Rates?
by Massoud Heidari & Liuren Wu
September 20, 2001
Abstract
We investigate whether the same finite dimensional dynamic
system spans both interest rates (the yield curve) and interest
rate options (the implied volatility surface). We find that the
options market exhibits factors independent of the underlying
yield curve. While three common factors are adequate to capture
the systematic movement of the yield curve, we need three
additional factors to capture the movement of the implied
volatility surface...
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Closed Form Solutions For Term
Structure Derivatives With Log-Normal Interest Rates
by Kristian R. Miltersen, Klaus Sandmann, & Dieter Sondermann
Abstract
We derive a unified term structure of interest rates model which
gives closed form solutions for caps and floors written on
interest rates as well as puts and calls written on zero-coupon
bonds. The crucial assumption is that the simple interest rate
over a fixed finite period that matches the contract, which we
want to price, is log-normally distributed. Moreover, this
assumption is shown to be consistent with the Heath-Jarrow-Morton
model for a specific choice of volatility...
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Does the Use of Financial
Derivatives Affect Earnings Management Decisions?
by Jan Barton
Goizueta Business School - Emory University
January 22, 2000
Abstract
I examine the effects of derivatives use on earnings management
behavior. I develop a self-selection simultaneous-equations
model that captures managers' incentives to use derivatives and
manage discretionary accruals. Empirical results from estimating
the model on 1994-1996 data for a sample of 304 Fortune 500
firms indicate that firms with larger derivatives portfolios
have lower levels of
discretionary accruals...
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Estimating Security Price
Derivatives Using Simulation
by Mark Broadie & Paul Glasserman
July 8, 1994
Abstract
Simulation has proved to be a valuable tool for estimating
security prices for which simple closed form solutions do not
exist. In this paper we present two direct methods, a pathwise
method and a likelihood ratio method, for estimating derivatives
of security prices using simulation. With the direct methods,
the information from a single simulation can be used to estimate
multiple derivatives along with a security's price. The main
advantage of the direct methods over re-simulation is increased
computational speed. Another advantage is that the
direct methods give unbiased estimates of derivatives, whereas
the estimates obtained by re-simulation are biased.
Computational results are given for both direct methods and
comparisons are made to the standard method of re-simulation to
estimate derivatives. The methods are illustrated for a path
independent model (European options), a path dependent model
(Asian options), and a model with multiple state variables
(options with stochastic volatility).
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A General Methodology To Price &
Hedge Derivatives In Incomplete Markets
by Erik Aurell, Roberto Baviera, Ola Hammarlid, Maurizio Serva,
& Angelo Vulpiani
October 24, 2005
Abstract
We introduce and discuss a general criterion for the derivative
pricing in the general situation of incomplete markets, we refer
to it as the No Almost Sure Arbitrage Principle. This approach
is based on the theory of optimal strategy in repeated
multiplicative games originally introduced by Kelly. As
particular cases we obtain the Cox-Ross-Rubinstein and
Black-Scholes in the complete markets case and the Schweizer and
Bouchaud-Sornette as a quadratic approximation of our
prescription...
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How Much Do Firms Hedge With
Derivatives?
by Wayne Guay & S.P. Kothari
University of Pennsylvania & Massachusetts Insitute of
Technology
March, 2002
Abstract
For 234 large non-financial corporations using derivatives, we
report the magnitude of their risk exposure hedged by financial
derivatives. If interest rates, currency exchange rates, and
commodity prices change simultaneously by three standard
deviations, the median firm’s derivatives portfolio, at most,
generates $15 million in cash and $31 million in value. These
amounts are modest relative to firm size, and operating and
investing cash flows, and other
benchmarks...
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Pricing Interest Rate
Derivatives: A General Approach
by George Chacko & Sanjiv Das
Harvard University
July, 1999
Abstract
The relationship between affine stochastic processes and bond
pricing equations in exponential term structure models has been
well-established (see Duffie and Kan [42]). We extend this
linkage to the pricing of interest rate derivatives. This paper
shows that, if the term structure model is exponential-a±ne,
then there is a simple linkage between the bond pricing solution
and the prices of many widely traded interest rate derivative
securities...
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The Size of Hedge Adjustments of
Derivatives Dealers' US Dollar Interest Rate Options
by John Kambhu
June, 1997
Abstract
The potential for the dynamic hedging of written options to lead
to positive feedback in asset price dynamics has received
repeated attention in the literature on financial derivatives.
Using data on OTC interest rate options from a recent survey of
global derivatives markets, this paper addresses the question
whether that potential for positive feedback is likely to be
realised. With the possible exception of the medium term segment
of the term structure, transaction volume in available hedging
instruments is sufficiently large to absorb the demands
resulting from the dynamic hedging of US dollar interest rate
options even in response to large interest rate shocks...
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The Underinvestment Problem and
Corporate Derivatives Use
by Gerald D. Gay & Jouahn Nam
1998
Abstract
We
analyze the underinvestment problem as a determinant of
corporate hedging policy. We find evidence of a positive
relation between a firm’s derivatives use and its growth
opportunities, as proxied by several alternative measures. For
firms with enhanced investment opportunities, derivatives use is
greater when they also have relatively low cash stocks. Firms
whose investment expenditures are positively correlated with
internal cash flows tend to have smaller derivatives positions,
which suggests potential natural hedges. Our findings support
the argument that firms’ derivatives use may partly be driven by
the need to avoid
potential underinvestment problems.
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The Use of Foreign Currency
Derivatives and Firm Market Value
by George Allayannis & James P. Weston
2001
Abstract
This article examines the use of foreign currency derivatives (FCDs)
in a sample of 720 large U.S. nonfinancial firms between 1990
and 1995 and its potential impact on firm value. Using Tobin's Q
as a proxy for firm value, we find a positive relation between
firm value and the use of FCDs. The hedging premium is
statistically and economically significant for firms with
exposure to exchange rates and is on average 4.87% of firm
value. We also find some evidence consistent with the hypothesis
that hedging causes an increase in firm value.
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