Hedge or Rebalance: Optimal Risk Management with Transaction Costs
| Autor: | Serge Kassibrakis, Florent Gallien, Semyon Malamud |
|---|---|
| Rok vydání: | 2018 |
| Předmět: |
optimal investment
Strategy and Management Economics Econometrics and Finance (miscellaneous) lcsh:HG8011-9999 transaction costs lcsh:Insurance Accounting Econometrics Economics Balance sheet consumption hedging Hedge (finance) time Risk management Transaction cost model business.industry futures asymptotic analysis optimal portfolio choice portfolio selection Portfolio Volatility (finance) business Deleveraging Futures contract |
| Zdroj: | Risks Volume 6 Issue 4 Risks, Vol 6, Iss 4, p 112 (2018) |
| ISSN: | 2227-9091 |
| DOI: | 10.3390/risks6040112 |
| Popis: | We solve the problem of optimal risk management for an investor holding an illiquid, alpha-generating fund and hedging his/her position with a liquid futures contract. When the investor is subject to a lower bound on net return, he/she is forced to reduce the total risk of his/her portfolio after a loss. In this case, he/she faces a tradeoff of either paying the transaction costs and deleveraging or keeping his/her current position in the illiquid instrument and hedging away some of the risk while keeping the residual, unhedgeable risk on his/her balance sheet. We explicitly characterize this tradeoff and study its dependence on asset characteristics. In particular, we show that higher alpha and lower beta typically widen the no-trading zone, while the impact of volatility is ambiguous. |
| Databáze: | OpenAIRE |
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