MARKET POWER AND FEEDBACK EFFECTS FROM HEDGING DERIVATIVES

2002 ◽  
Vol 05 (08) ◽  
pp. 845-875 ◽  
Author(s):  
JOÃO AMARO DE MATOS ◽  
JOÃO SOBRAL DO ROSÁRIO
Keyword(s):  
Market Power ◽  
Feedback Effect ◽  
Feedback Effects ◽  
Underlying Asset ◽  
Market Makers ◽  
Price Process ◽  
Bid Ask Spread ◽  
Hedging Strategies ◽  
Liquidity Traders

In this paper we model how the transaction of derivatives affects the price process of the underlying asset, considering the existence of a few agents with market power and a population of liquidity traders. This setting generates an equilibrium bid-ask spread for the underlying asset. The resulting feedback effect of hedging strategies is shown to depend on what type of agent more actively hedges. We also characterize how the feedback effect is lessened as the number of market-makers increases.

Evolution and Feedback Effects of High-z Star-Forming Galaxies

2015 ◽  
Vol 11 (A29B) ◽  
pp. 228-228
Author(s):  
Masami Ouchi
Keyword(s):  
Structure Formation ◽  
Gravitational Lensing ◽  
Formation Rate ◽  
Feedback Effect ◽  
Density Estimates ◽  
Feedback Effects ◽  
Planck Data ◽  
Star Forming ◽  
Deep Imaging ◽  
Open Question

AbstractI review the recent observational progresses of star-forming galaxies at a redshift up to z~10. Inconjunction with gravitational lensing magnifications, deep HST observations obtain first density estimates of UV continuum radiation given by young massive stars, and reveal that the star-formation rate density (SFRD)continuously decreases from z~2-3 to z~10. This SFRD decrease towards high-z should be explained by thecombination of the cosmic structure formation and radiative cooling+feedback effects in a halo. To decouple thecontribution of the cosmic structure formation from the SFRD decrease, the stellar-to-halo mass ratios (SHMR) ofhigh-z galaxies are derived by intensive clustering analyses with HST and Subaru survey data. The SHMR-halo massrelation shows a clear evolution from z~0 to 6, suggesting that the cooling and feedback effects are different betweenthe present and early epochs of the cosmic history. By deep imaging and spectroscopic observations, feedbacksignatures are found in 10-100 kpc-scale outflow of ionized oxgen gas identified around star-forming galaxies with andwithout an AGN heating. There are similarly-large hydrogen Lyα halos and blobs associated with high-z star-forminggalaxies, but the physical origin of these Lyα halos and blobs is an open question. At z≳6, UV radiation of ionizingphotons produced by star-forming galaxies contribute to the cosmic reionization, while it is thought that the UVradiation prevent formation of next generation stars in dwarf galaxies at the early cosmic epoch, which works as acosmological feedback effect. I discuss this reionizations cosmological feedback effect with the up-to-date resultsfrom the HST and Planck data.

FEEDBACK EFFECTS OF THYROXINE ON THE HYPOTHALAMUS AND PITUITARY OF GOLDFISH, CARASSIUS AURATUS

1971 ◽  
Vol 51 (1) ◽  
pp. 31-39 ◽  
Author(s):  
R. E. PETER
Keyword(s):  
Negative Feedback ◽  
Positive Feedback ◽  
Carassius Auratus ◽  
Feedback Effect ◽  
Inhibitory Factor ◽  
Pituitary Stalk ◽  
Thyroid Activity ◽  
Feedback Effects ◽  
Goldfish Carassius Auratus ◽  
Positive Feedback Effect

SUMMARY The effect on thyroid activity of a systemically ineffective dose of thyroxine (T4) implanted in the hypothalamus or pituitary of goldfish was tested. Thyroid activity was decreased by T4 implantation in either location, indicating that T4 has a negative feedback effect on the pituitary causing a decrease in thyrotrophin secretion, and a positive feedback effect on the hypothalamus stimulating the secretion of thyrotrophin inhibitory factor (TIF). Fish with a T4 or blank-control implant in the pituitary that had a damaged pituitary stalk, as a result of the operative procedures, were hyperthyroid, suggesting either that TIF is more effective in suppressing thyrotroph activity than T4 and that the effect of T4 was masked by the absence of TIF, or, less likely, that T4 negative feedback in the pituitary is not effective independent of TIF. The results were compared with the information about T4 feedback in mammals.

LIQUIDITY PROVISION IN CAPACITY-CONSTRAINED MARKETS

2011 ◽  
Vol 15 (S1) ◽  
pp. 119-144 ◽  
Author(s):  
Pierre-Olivier Weill
Keyword(s):  
Financial Market ◽  
Asset Allocation ◽  
Capacity Constraint ◽  
Market Makers ◽  
Liquidity Provision ◽  
Bid Ask Spread ◽  
Time Variations ◽  
Capacity Constrained ◽  
Constrained Markets ◽  
Over Time

We study a competitive dynamic financial market subject to a transient selling pressure when market makers face a capacity constraint on their number of trades per unit of time with outside investors. We show that profit-maximizing market makers provide liquidity in order to manage their trading capacity constraint optimally over time: they use slack trading capacity early to accumulate assets when the selling pressure is strong in order to relax their trading capacity constraint and sell to buyers more quickly when the selling pressure subsides. When the trading capacity constraint binds, the bid–ask spread is strictly positive, widening and narrowing as market makers build up and unwind their inventories. Because the equilibrium asset allocation is constrained Pareto-optimal, the time variations in bid–ask spread are not a symptom of inefficient liquidity provision.

scholarly journals NUMERICAL STABILITY OF A HYBRID METHOD FOR PRICING OPTIONS

2019 ◽  
Vol 22 (07) ◽  
pp. 1950036
Author(s):  
MAYA BRIANI ◽  
LUCIA CARAMELLINO ◽  
GIULIA TERENZI ◽  
ANTONINO ZANETTE
Keyword(s):  
Interest Rate ◽  
Asset Price ◽  
Option Prices ◽  
Underlying Asset ◽  
Binomial Tree ◽  
Price Process ◽  
Pricing Options ◽  
Model Following ◽  
Jump Model ◽  
The Interest Rate

We develop and study stability properties of a hybrid approximation of functionals of the Bates jump model with stochastic interest rate that uses a tree method in the direction of the volatility and the interest rate and a finite-difference approach in order to handle the underlying asset price process. We also propose hybrid simulations for the model, following a binomial tree in the direction of both the volatility and the interest rate, and a space-continuous approximation for the underlying asset price process coming from a Euler–Maruyama type scheme. We test our numerical schemes by computing European and American option prices.

ON OPTIMAL SUPER-HEDGING AND SUB-HEDGING STRATEGIES

2013 ◽  
Vol 16 (06) ◽  
pp. 1350038 ◽  
Author(s):  
YUKIHIRO TSUZUKI
Keyword(s):  
Joint Distribution ◽  
Optimal Pricing ◽  
Exotic Options ◽  
Underlying Asset ◽  
Knock Out ◽  
Basket Options ◽  
Hedging Strategies ◽  
Pricing Bounds ◽  
Exchange Options ◽  
Underlying Processes

This paper proposes optimal super-hedging and sub-hedging strategies for a derivative on two underlying assets without any specification of the underlying processes. Moreover, the strategies are free from any model of the dependency between the underlying asset prices. We derive the optimal pricing bounds by finding a joint distribution under which the derivative price is equal to the hedging portfolio's value; the portfolio consists of liquid derivatives on each of the underlying assets. As examples, we obtain new super-hedging and sub-hedging strategies for several exotic options such as quanto options, exchange options, basket options, forward starting options, and knock-out options.

scholarly journals The Bid-Ask Spread in the Danish Stock Market: Evidence from the 1990s

2016 ◽  
Vol 8 (9) ◽  
pp. 127
Author(s):  
Torben Voetmann
Keyword(s):  
Stock Market ◽  
Trading Volume ◽  
Significant Information ◽  
Market Makers ◽  
Bid Ask Spread ◽  
Earnings Surprises ◽  
Informed Traders ◽  
The Cost ◽  
Cost Components ◽  
Negative Earnings

This paper investigates the cost components of bid-ask spreads around earnings announcements on the small Danish stock market in the 1990s. The results indicate that negative earnings surprises convey pricing information, suggesting the existence of significant information asymmetry between market makers and informed traders. Negative earnings surprises resulted in an increase in adverse-selection cost and trading volume while inventory-holding and order-processing costs decreased, leading to a combined decrease in the realized spread. The change in the realized spread is significant, while the change in the quoted bid-ask spread is negligible. Overall, the results suggest that informed traders’ ability to assess firms’ performance in the Danish stock market affects the bid-ask spread around announcements of earnings. The observed changes in cost components on the small Danish stock market are similar to those observed in larger and more active capital markets.

THE LIMITATIONS OF NO-ARBITRAGE ARGUMENTS FOR REAL OPTIONS

2001 ◽  
Vol 04 (02) ◽  
pp. 361-373 ◽  
Author(s):  
F. HUBALEK ◽  
W. SCHACHERMAYER
Keyword(s):  
Crude Oil ◽  
Real Options ◽  
Second Step ◽  
No Arbitrage ◽  
Price Process ◽  
Hedging Strategies ◽  
Text Model ◽  
Highly Correlated

We consider an option c which is contingent on an underlying [Formula: see text] that is not a traded asset. This situation typically arises in the context of real options. We investigate the situation when there is a "surrogate" traded asset S whose price process is highly correlated with that of [Formula: see text]. An illustration would be the cases where S and [Formula: see text] model two different brands of crude oil. The main result of the paper shows that in this case one cannot draw any non-trivial conclusions on the price of the option by only using no-arbitrage arguments. In a second step we try to isolate hedging strategies on the traded asset S which minimize the variance of the hedging error. We show in particular, that the naive strategy of simply replacing [Formula: see text] by S fails to be optimal and we are able to quantify how far it is from being optimal.

Cloud-Resolving Simulation of Low-Cloud Feedback to an Increase in Sea Surface Temperature

2010 ◽  
Vol 67 (3) ◽  
pp. 730-748 ◽  
Author(s):  
Kuan-Man Xu ◽  
Anning Cheng ◽  
Minghua Zhang
Keyword(s):  
Heat Flux ◽  
Surface Temperature ◽  
Liquid Water ◽  
Cloud Feedback ◽  
Feedback Effect ◽  
Sea Surface ◽  
Feedback Effects ◽  
Clear Sky ◽  
Surface Latent Heat Flux ◽  
Low Cloud

Abstract This study investigates the physical mechanisms of the low cloud feedback through cloud-resolving simulations of cloud-radiative equilibrium response to an increase in sea surface temperature (SST). Six pairs of perturbed and control simulations are performed to represent different regimes of low clouds in the subtropical region by specifying SST differences (ΔSST) in the range of 4 and 14 K between the warm tropical and cool subtropical regions. The SST is uniformly increased by 2 K in the perturbed set of simulations. Equilibrium states are characterized by cumulus and stratocumulus cloud regimes with variable thicknesses and vertical extents for the range of specified ΔSSTs, with the perturbed set of simulations having higher cloud bases and tops and larger geometric thicknesses. The cloud feedback effect is negative for this ΔSST range (−0.68 to −5.22 W m−2 K−1) while the clear-sky feedback effect is mostly negative (−1.45 to 0.35 W m−2 K−1). The clear-sky feedback effect contributes greatly to the climate sensitivity parameter for the cumulus cloud regime whereas the cloud feedback effect dominates for the stratocumulus regime. The increase of liquid water path (LWP) and cloud optical depth is related to the increase of cloud thickness and liquid water content with SST. The rates of change in surface latent heat flux are much higher than those of saturation water vapor pressure in the cumulus simulations. The increase in surface latent heat flux is the primary mechanism for the large change of cloud physical properties with +2 K SST, which leads to the negative cloud feedback effects. The changes in cloud fraction also contribute to the negative cloud feedback effects in the cumulus regime. Comparison of these results with prior modeling studies is also discussed.

scholarly journals DUPIRE'S EQUATION FOR BUBBLES

2012 ◽  
Vol 15 (06) ◽  
pp. 1250041 ◽  
Author(s):  
ERIK EKSTRÖM ◽  
JOHAN TYSK
Keyword(s):  
Option Price ◽  
Local Martingale ◽  
Option Prices ◽  
Uniqueness Of Solutions ◽  
Underlying Asset ◽  
Put Options ◽  
Price Process ◽  
Usual Form ◽  
Volatility Models ◽  
Strict Local Martingale

We study Dupire's equation for local volatility models with bubbles, i.e. for models in which the discounted underlying asset follows a strict local martingale. If option prices are given by risk-neutral valuation, then the discounted option price process is a true martingale, and we show that the Dupire equation for call options contains extra terms compared to the usual equation. However, the Dupire equation for put options takes the usual form. Moreover, uniqueness of solutions to the Dupire equation is lost in general, and we show how to single out the option price among all possible solutions. The Dupire equation for models in which the discounted derivative price process is merely a local martingale is also studied.

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