Quoting Multiasset Equity Options in the Presence of Errors from Estimating Correlations

Fengler, Matthias R.; Schwendner, Peter

doi:10.3905/jod.2004.412362

Cited by 13 publications

(11 citation statements)

References 15 publications

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“…When risk appetite fades, those assets fall and there is a flight to safe-haven assets. This is in contrast to pre-crisis dynamics when high correlations were only associated with market contractions (see Fengler and Schwendner 2004) and high volatilities.…”

Section: Introductioncontrasting

confidence: 63%

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Handling risk-on/risk-off dynamics with correlation regimes and correlation networks

Papenbrock

Schwendner

2015

Financ Mark Portf Manag

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In this paper, we present a framework for detecting distinct correlation regimes and analyzing the emerging state dependences for a multi-asset futures portfolio from 1998 to 2013. These correlation regimes have been significantly different since the financial crisis of 2008 than they were previously; cluster tracking shows that asset classes are now less separated. We identify distinct "risk-on" and "risk-off" assets with the help of correlation networks. In addition to visualizing, we quantify these observations using suitable metrics for the clusters and correlation networks. The framework will be useful for financial risk management, portfolio construction, and asset allocation.

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Section: Introductioncontrasting

confidence: 63%

“…The bootstrap approach was pioneered by Efron (1979). A financial application of mapping bootstrapped correlation matrices to model price densities is presented by Fengler and Schwendner (2004). The idea of using bootstrapping to validate results of correlation networks is presented by Tumminello et al (2007).…”

Section: Statistical Characterizationmentioning

confidence: 99%

Handling risk-on/risk-off dynamics with correlation regimes and correlation networks

Papenbrock

Schwendner

2015

Financ Mark Portf Manag

Self Cite

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“…This traded basket option is well known to be a "correlation-dependent product", as well described e.g. in Fengler and Schwendner (2004), while maintaining a closed-form solution for the option price. The payoff of the Best-of rainbow option is given by:…”

Section: Valuation Of the "Best-of" Basket Optionmentioning

confidence: 99%

Option pricing when correlations are stochastic: an analytical framework

2007

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“…There is a growing market for such correlation products (see Mahoney [1995] or Fengler and Schwendner [2004]) and we think that the issue of predictability is even more important for these derivatives than for options written on a single asset. There are two main reasons for this importance.…”

Section: Fall 2007mentioning

confidence: 99%

Do Lead-Lag Effects Affect Derivative Pricing?

Korn¹,

Uhrig‐Homburg²

2007

JOD

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The chosen parameter values are σ p 2 = σ s 2 = 0.3, a = 1, and ρ ps is either -1, -0.5, 0, or 0.5.. The current share price is always P(0) = 40, the current index level S(0) is either 40, 45, or 50, and the time to maturity is either one year, five years, or 10 years. Variances and covariance of finite holding-period returns are fixed at Var [∆p * ]/τ = 0.1456, Var [∆s * ]/τ = 0.1456, and Cov[∆p * , ∆s * ]/τ = 0.0728. This exhibit shows parameter estimates resulting from estimator (3), corrected estimates obtained from Equations (12), and the corresponding theoretical prices (in €) of one SAP stock option with 10 years to maturity on December 31, 1999, when the stock price was €161.67. Option prices are given for freeze-out periods of 2, 3, and 4 years.This exhibits shows estimated autocorrelations and cross-autocorrelations based on 250 daily observations from the period preceding December 31, 1999. Autocorrelations are provided for up to 10 lags and cross-autocorrelations for up to five lags. Negative lags for the cross-atutocorrelations refer to lagged returns of the GSTI Software Index and positive lags to lagged returns of SAP stocks. The horizontal lines are the boundaries of a 95% confidence interval. SUMMARY AND CONCLUSIONLo and Wang [1995] have shown that the predictability of an asset's return has an impact on derivative prices since, for a fixed variance of finite-holding period returns, predictability changes the instantaneous variance. We extend Lo and Wang's analysis by considering 46 DO LEAD-LAG EFFECTS AFFECT DERIVATIVE PRICING? FALL 2007 E X H I B I T 5 Parameter Estimates and Quanto Forward Price AdjustmentsThis exhibit shows parameter estimates resulting from estimator (3), the corrected estimates obtained from Equations (12), and the corresponding discount rates from Equation (21). The data consists of daily returns on the BOVESPA Index and the relative changes of the value of U.S. $1 in Brazilian real over the year 2006.This exhibit shows parameter estimates resulting from estimator (3), the corrected estimates obtained from Equations (12), and the present value of the yearly incentive fee charged by the DWS European Stocks Type-O Fund (in percent of the net asset value). The data consists of daily returns of the fund and the MSCI Europe index over the year 2006.

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Quoting Multiasset Equity Options in the Presence of Errors from Estimating Correlations

Cited by 13 publications

References 15 publications

Handling risk-on/risk-off dynamics with correlation regimes and correlation networks

Handling risk-on/risk-off dynamics with correlation regimes and correlation networks

Option pricing when correlations are stochastic: an analytical framework

Do Lead-Lag Effects Affect Derivative Pricing?

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