Hedging and Asset Allocation for Structured Products

Risk Control Research Paper No. 5/2

26 Pages Posted: 29 Nov 2011

Date Written: December 1, 2005

Abstract

This paper presents techniques for hedging structured products in incomplete markets. Under actual distributions, we simulate correlated ratings histories for pool exposures up to the hedging horizon and then employ conditional pricing functions estimated from a preliminary Monte Carlo based on risk adjusted distributions. The approach is very flexible. We apply it to a realistic multi-period CDO transaction.

Keywords: structured products, hedging, pricing, regression, conditional pricing functions

JEL Classification: E44

Suggested Citation

Perraudin, William Robert Maurice and Peretyatkin, Vladislav and Lamb, Robert, Hedging and Asset Allocation for Structured Products (December 1, 2005). Risk Control Research Paper No. 5/2, Available at SSRN: https://ssrn.com/abstract=1961136 or http://dx.doi.org/10.2139/ssrn.1961136

William Robert Maurice Perraudin (Contact Author)

Risk Control Limited ( email )

13-14 Dean Street
London, SE21 8LU
United Kingdom

Vladislav Peretyatkin

affiliation not provided to SSRN ( email )

Robert Lamb

Imperial College London ( email )

South Kensington Campus
Exhibition Road
London, Greater London SW7 2AZ
United Kingdom

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