Subjective Beliefs and Optimal Hedging Policy
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This paper examines why some investors or companies use simple strategies to hedge their risk, while others use more complex strategies with a number of options or even exotic derivatives. Extending the methodology introduced by Carr and Madan (2001) and Bliss and Panigirtzoglou (2004), we find that the hedging policy employed by investors or companies reveals their own subjective beliefs on the return distribution of their holding assets. Our findings help us understand why the most common hedging strategies are different between the markets, especially, equity market and foreign exchange market.
Abstract
This paper examines why some investors or companies use simple strategies to hedge their risk, while others use more complex strategies with a number of options or even exotic derivatives. Extending the methodology introduced by Carr and Madan (2001) and Bliss and Panigirtzoglou (2004), we find that the hedging policy employed by investors or companies reveals their own subjective beliefs on the return distribution of their holding assets. Our findings help us understand why the most common hedging strategies are different between the markets, especially, equity market and foreign exchange market.
참고문헌 (16)
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