Facoltà di scienze economiche

Essays on the valuation and hedging of derivative securities

Dall'O, Hakim ; Barone Adesi, Giovanni (Dir.)

Thèse de doctorat : Università della Svizzera italiana, 2011 ; 2011ECO001.

This thesis is made of three articles dealing with two main subjects: the so called "Kernel Puzzle" and the problem of immunization of portfolio of treasury and corporate bonds. For the first topic, we provide a new method to derive the state price density per unit probability based on option prices and GARCH model. We derive the risk neutral distribution using the result in Breeden and... Plus

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    Summary
    This thesis is made of three articles dealing with two main subjects: the so called "Kernel Puzzle" and the problem of immunization of portfolio of treasury and corporate bonds. For the first topic, we provide a new method to derive the state price density per unit probability based on option prices and GARCH model. We derive the risk neutral distribution using the result in Breeden and Litzenberger (1978) and the historical density adapting the GARCH model of Barone-Adesi, Engle, and Mancini (2008). For the second topic, the first article deals with the immunization of a portfolio of treasury bonds against interest rate risk and in particular we test alternative models of yield curve risk by hedging US Treasury bond portfolios through note/bond futures. The last article deals with the problem of immunization of a portfolio of corporate bonds. We test here alternative strategies for hedging a portfolio composed from BBB-rated corporate bonds. Our results highlight a change of regime. From 2000 to 2007, a hedging strategy based only on T-bond futures would have reduced the variance of the portfolio by circa 83.5%. This compares well to the maximum variance reduction of 50% reported by previous studies hedging corporate bonds through T-bond and S&P500 futures.