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Trading Strategies with Partial Access to the Derivatives Market

  • This research analyzes tradingstrategies with derivatives when there are several assets and risk factors. We investigate portfolio improvement if investors have full and partialaccess to the derivativesmarkets, i.e. situations in which derivatives are written on some but not all stocks or risk factors traded on the market. The focus is on markets with jump risk. In these markets the choice of optimal exposures to jump and diffusion risk is linked. In a numerical application we study the potential benefit from adding derivatives to the market. It turns out that e.g. diffusion correlation and volatility or jump sizes may have a significant impact on the benefit of a new derivative product even if market prices of risk remain unchanged. Given the structure of risk investors may have different preferences for making risk factors tradable. Utility gains provided by new derivatives may be both increasing or decreasing depending on the type of contract added.

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Institutes:Fakultät Sozial- und Wirtschaftswissenschaften / Lehrstuhl für Betriebswirtschaftslehre, insbesondere Banking und Finanzcontrolling
Author:Matthias Muck
Title of the journal / compilation (English):Journal of Banking & Finance
Place of publication:Amsterdam
Publisher:Elsevier North-Holland
Year of publication:2010
Issue:34 (2010), 6
Pages / Size:S. 1288 - 1298 : graph. Darst.
Year of first publication:2010
Keywords:Derivatives; Jumps; Portfolio choice; Trading strategies
Document Type:Article in a journal
Publishing Institution:Otto-Friedrich-Universität Bamberg
Release Date:2012/11/15
Licence (German):License LogoDeutsches Urheberrecht