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: 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
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