INDEM - Working Paper Business Economic Series
http://hdl.handle.net/10016/6578
2019-01-23T14:29:29ZGolden options in financial mathematics
http://hdl.handle.net/10016/27672
Golden options in financial mathematics
Balbás de la Corte, Alejandro; Balbas Aparicio, Beatriz; Balbas Aparicio, Raquel
Universidad Carlos III de Madrid. Instituto para el Desarrollo de Empresas y Mercados (INDEM)
This paper deals with the construction of smooth good deals (SGD), i.e., sequences of self- nancing strategies whose global risk diverges to ∞ and such that every security in every strategy of the sequence is a smooth derivative with a bounded delta. If the selected risk measure is the value at risk then these sequences exist under quite weak conditions, since one can involve risks with both bounded and unbounded expectation, as well as non-friction-free pricing rules. Moreover, every strategy in the sequence is composed of an European option plus a position in a riskless asset. The strike of the option is easily computed in practice, and the ideas may also apply in some actuarial problems such as the selection of an optimal reinsurance contract. If the chosen risk measure is a coherent one then the general setting is more limited. Indeed, though frictions are still accepted, expectations and variances must remain nite. The existence of SGDs will be characterized, and computational issues will be properly addressed as well. It will be shown that SGDs often exist, and for the conditional value at risk they are composed of the riskless asset plus easily replicable European puts. Numerical experiments will be presented in all of the studied cases.
2018-11-01T00:00:00ZCIFRA: Challenging the ICT Patent Framework for Responsible Innovation. D4.4: Policy Paper on potential new framings, identifying needs for changing the current IPR regime relevant for ICT industries
http://hdl.handle.net/10016/25486
CIFRA: Challenging the ICT Patent Framework for Responsible Innovation. D4.4: Policy Paper on potential new framings, identifying needs for changing the current IPR regime relevant for ICT industries
Fullea Carrera, Eduardo; López-Carrasco, Antonio; Blind, Knut; Florez Ramos, Esmeralda; Fosfuri, Andrea; Martínez Ros, Ester; Álvarez Iturri, Silvana Valeria
Universidad Carlos III de Madrid. Instituto para el Desarrollo Empresarial
2017-10-01T00:00:00ZRelationships between the stochastic discount factor and the optimal omega ratio
http://hdl.handle.net/10016/26348
Relationships between the stochastic discount factor and the optimal omega ratio
Balbás de la Corte, Alejandro; Balbas Aparicio, Beatriz; Balbas Aparicio, Raquel
Universidad Carlos III de Madrid. Instituto para el Desarrollo Empresarial
The omega ratio is an interesting performance measure because it fo- cuses on both downside losses and upside gains, and nancial markets are re ecting more and more asymmetry and heavy tails. This paper focuses on the omega ratio optimization in general Banach spaces, which applies for both in nite dimensional approaches related to continuous time stochastic pricing models (Black and Scholes, stochastic volatility, etc.) and more classical problems in portfolio selection. New algorithms will be provided, as well as Fritz John-like and Karush-Kuhn-Tucker-like optimality conditions and duality results, despite the fact that omega is neither di¤er- entiable nor convex. The optimality conditions will be applied to the most important pricing models of Financial Mathematics, and it will be shown that the optimal value of omega only depends on the upper and lower bounds of the pricing model stochastic discount factor. In particular, if the stochastic discount factor is unbounded (Black and Scholes, Heston, etc.) then the optimal omega ratio becomes unbounded too (it may tend to in nity), and the introduction of several nancial constraints does not overcome this caveat. The new algorithms and optimality conditions will also apply to optimize omega in static frameworks, and it will be illustrated that both in nite- and nite-dimensional approaches may be useful to this purpose.
2018-02-01T00:00:00ZInterest Rate Future Quality Options and Negative Interest Rates
http://hdl.handle.net/10016/24859
Interest Rate Future Quality Options and Negative Interest Rates
Balbás de la Corte, Alejandro; Laborda Herrero, Ricardo
Universidad Carlos III. Instituto para el Desarrollo Empresarial
This paper verifies the existence of diversification gains from considering the "quality option asset strategy", which adds the portfolio replicating the interest rate future quality option, as proposed by Balbás and Reichardt (2010), and a portfolio comprised of stock and bonds. The empirical results show that the gains are statistically and economically significant, especially in the negative one-month Euribor rate period. The out-of-sample optimal tangency portfolio, which includes "quality option replicas", delivers an increase in the Sharpe ratio of around 40%, as well as a positive returnHloss oIseJng the costs of higher turnover. The main source of the diversiKcaLon gains emanates from the very low correlation between quality options and stocks. Furthermore, the (at least theoretical) existence of sequential arbitrage under negative rates magnifies the low correlation effect.
2017-07-10T00:00:00Z