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Conference of 2007
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This research analyzes implements derivative trading strategies when there are several assets and risk factors. We investigate portfolio improvements if investors have full and partial access to the derivatives markets, i.e. situations in which options are written on some but not all stocks traded in the market. The focus is on markets with jump risk. In these markets the choice of optimal exposure with respect to jump and diffusion risk is linked. In a numerical application we study the potential benefit from adding derivatives to the market. These considerations might be taken into account by exchanges planning to introduce new derivative contracts.
Abstract
Trading Strategies with Partial Access to the Derivatives Market
Muck, MatthiasThis research analyzes implements derivative trading strategies when there are several assets and risk factors. We investigate portfolio improvements if investors have full and partial access to the derivatives markets, i.e. situations in which options are written on some but not all stocks traded in the market. The focus is on markets with jump risk. In these markets the choice of optimal exposure with respect to jump and diffusion risk is linked. In a numerical application we study the potential benefit from adding derivatives to the market. These considerations might be taken into account by exchanges planning to introduce new derivative contracts.