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Closing Time Effects on Derivative Pricing and Risk Measurement

Melin, Andreas (2014) FMS820 20141
Mathematical Statistics
Abstract (Swedish)
Risk measures such as Value at Risk are highly dependent on a sample
of daily returns. The daily return can be measured in different intervals
and this thesis examines how the choice of the daily return interval affects derivative pricing, risk measures, fund performance and products with collateral agreements. It is shown that the VaR measure varies significantly with the choice of daily return interval and for the OMXS30, an optimal interval is presented. The daily return characteristics are examined using market microstructure theories and the concept of volatility is also handled for different time intervals. Collateral payments have a direct effect on a bank’s result due to the funding costs of outstanding collateral. It is shown... (More)
Risk measures such as Value at Risk are highly dependent on a sample
of daily returns. The daily return can be measured in different intervals
and this thesis examines how the choice of the daily return interval affects derivative pricing, risk measures, fund performance and products with collateral agreements. It is shown that the VaR measure varies significantly with the choice of daily return interval and for the OMXS30, an optimal interval is presented. The daily return characteristics are examined using market microstructure theories and the concept of volatility is also handled for different time intervals. Collateral payments have a direct effect on a bank’s result due to the funding costs of outstanding collateral. It is shown that the daily return interval is an important component in determining the payments and that the choice of return interval can be used to have an expected positive flow of collateral which leads to a positive revenue component for the bank. (Less)
Please use this url to cite or link to this publication:
author
Melin, Andreas
supervisor
organization
course
FMS820 20141
year
type
H2 - Master's Degree (Two Years)
subject
language
English
id
4611579
date added to LUP
2014-08-27 11:45:48
date last changed
2014-08-27 11:45:48
@misc{4611579,
  abstract     = {{Risk measures such as Value at Risk are highly dependent on a sample
of daily returns. The daily return can be measured in different intervals
and this thesis examines how the choice of the daily return interval affects derivative pricing, risk measures, fund performance and products with collateral agreements. It is shown that the VaR measure varies significantly with the choice of daily return interval and for the OMXS30, an optimal interval is presented. The daily return characteristics are examined using market microstructure theories and the concept of volatility is also handled for different time intervals. Collateral payments have a direct effect on a bank’s result due to the funding costs of outstanding collateral. It is shown that the daily return interval is an important component in determining the payments and that the choice of return interval can be used to have an expected positive flow of collateral which leads to a positive revenue component for the bank.}},
  author       = {{Melin, Andreas}},
  language     = {{eng}},
  note         = {{Student Paper}},
  title        = {{Closing Time Effects on Derivative Pricing and Risk Measurement}},
  year         = {{2014}},
}