This dissertation analyzes Open-End Turbo Certificates (OETCs), a popular class of retail derivatives. OETCs can be exercised at any time at the investor’s discretion. In order to explain the existence of the certificates jump risk must be considered. We propose and implement an optimal stopping approach to price these securities, which further allows for determining optimal exercise thresholds. They result from the trade-off between benefits from downward jump protection and financing costs. We show that early exercise right has a significant impact on their values. In an empirical analysis pertaining to the years 2007 through 2009 it turns out that certificates which could be rationally held are very rare, although the degree by which the underlying exceeds the optimal exercise thresholds continually declines over the considered period. We suggest three lines of explanation: general market movement, jump risk perception by the market, and increased competition among issuers.
In addition to catastrophe and operational risks like e.g. the terrorist attacks on the World Trade Center airlines are exposed to substantial capital market risks. This study examines the cases of three major airlines including Lufthansa, United Airlines, and Qantas. Their risk profiles are analyzed with respect to commodity and exchange rate risks by applying the “Earnings at Risk”-concept to the profit and loss statements of the year 2003. Furthermore, potential hedging strategies are explored. It turns out that airlines are especially sensitive to movements of the oil price. However, hedges can provide (partial) protection against adverse movements of the risk factors.
This paper addresses the capital requirements based on the RiskMetrics™ framework and the BIS standard model. A case study is developed which shows that the capital requirements can be reduced by applying the more accurate RiskMetrics™ framework. Furthermore it gives an overview of the capital requirement rules for credit risk and operational risk in the Basel II Accord.
This research analyzes the convergence properties of a discrete implementation of the Hull and White two-factor model. It compares caplet prices using both the discrete valuation algorithm and the analytic solution. Quality of the results depends crucially on the properties of the model parameters. The valuation algorithm may be improved while preserving its computational efficiency. An application of the modified algorithm to the caplet pricing problem indicates that substantially reduced valuation errors.
With the expansion of electronic exchanges and the nearly universal access to the Internet, it has become possible for retail investors to buy and sell exchange-traded derivative contracts from their desktops. In Europe this ability has even been extended to allow small investors to purchase over-the-counter exotic option contracts through the Internet. In this article, Muck analyzes the pricing of a variety of web-traded exotic instruments, available in this „market.” As one would expect, the contracts are overpriced on average, relative to theoretical valuations based on exchange-traded options on the same underlying DAX index. A second hypothesis, that overpricing diminishes as the contracts approach maturity receives a little less support.