Risk Management for Derivatives in Illiquid Markets: A Simulation Study

Topics:
Investment and Capital Markets
Tags:
Derivatives,
ETH Zurich,
Finance,
Financial Planning,
Financial Services,
Management,
Risk Management,
Security,
Strategy
Source:
ETH Zurich

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Overview: The present paper focuses on the risk management for derivative securities via dynamic hedging. The paper studies a model of an illiquid market where the implementation of a dynamic hedging strategy has an impact on the price process of the underlying asset. In practice such a feedback effect could for instance arise, if the volume of trading committed to dynamic hedging strategies is relatively large compared to the overall trading volume on the underlying.

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Format: PDF | Size: 227KB | Date: Nov 2001 | Pages: 19

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