Leveraged Exchange-Traded Funds (eBook)

Price Dynamics and Options Valuation

Tim Leung, Marco Santoli (Autoren)

eBook Download: PDF

2016 | 1. Auflage
X, 104 Seiten
Springer-Verlag
978-3-319-29094-2 (ISBN)

Infos

This book provides an analysis, under both discrete-time and continuous-time frameworks, on the price dynamics of leveraged exchange-traded funds (LETFs), with emphasis on the roles of leverage ratio, realized volatility, investment horizon, and tracking errors. This study provides new insights on the risks associated with LETFs. It also leads to the discussion of new risk management concepts, such as admissible leverage ratios and admissible risk horizon, as well as the mathematical and empirical analyses of several trading strategies, including static portfolios, pairs trading, and stop-loss strategies involving ETFs and LETFs. The final part of the book addresses the pricing of options written on LETFs. Since different LETFs are designed to track the same reference index, these funds and their associated options share very similar sources of randomness. The authors provide a no-arbitrage pricing approach that consistently value options on LETFs with different leverage ratios with stochastic volatility and jumps in the reference index. Their results are useful for market making of these options, and for identifying price discrepancies across the LETF options markets. As the market of leveraged exchange-traded products become a sizeable connected part of the financial market, it is crucial to better understand its feedback effect and broader market impact. This is important not only for individual and institutional investors, but also for regulators.

Tim Leung is a tenure-track Assistant Professor at Columbia University's Industrial Engineering and Operations Research (IEOR) Department. He is also an affiliated faculty member of the Center for Financial Engineering, and Data Sciences Institute at Columbia. He received a PhD in Operations Research & Financial Engineering (ORFE) from Princeton University. Dr. Leung's research areas are Financial Engineering and Optimal Stochastic Control, with a focus on the valuation of financial derivatives, and associated risk management and trading strategies. He has written extensively on exchange-traded funds (ETFs). His research has been funded by the National Science Foundation (NSF). He has published in various Financial Mathematics journals, including Mathematical Finance, Finance and Stochastics, SIAM Journal on Financial Mathematics, and Quantitative Finance. He is also an officer of the SIAM SIAG on Financial Mathematics and Engineering, and the INFORMS Finance Section.

Inhalt

Preface 8
Contents 10
1 Introduction 12
2 Price Dynamics of Leveraged ETFs 17
2.1 Returns of Leveraged ETFs 17
2.2 Continuous-Time Model for Leveraged ETFs 20
2.3 Empirical Leverage Ratio Estimation 24
2.4 Dynamic Leveraged Futures Portfolio 32
2.4.1 Static Leverage Replication 34
2.4.2 Dynamic Leverage Replication 38
2.5 Static Delta-Neutral Long-Volatility LETF Portfolios 41
3 Risk Analysis of Leveraged ETFs 46
3.1 Admissible Leverage Ratio 47
3.2 Admissible Risk Horizon 52
3.3 Intra-Horizon Risk and Stop-Loss Exit 54
4 Options on Leveraged ETFs 60
4.1 Empirical Returns of LETF Options 60
4.2 Implied Dividend 68
4.3 Implied Volatility 71
4.4 Pricing Under Heston Stochastic Volatility 74
4.5 Model Calibration and Consistency 78
4.6 Moneyness Scaling 84
4.7 Incorporating Jumps with Stochastic Volatility 88
5 Conclusions 98
References 101
Index 104

Produkt-Details

• Erscheint lt. Verlag: 24.2.2016
• Reihe/Serie: SpringerBriefs in Quantitative Finance
• Zusatzinfo: X, 97 p. 32 illus. in color.
• Verlagsort: Cham
• Sprache: englisch
• Themenwelt: Wirtschaft ► Allgemeines / Lexika
• Schlagworte: exchange-traded funds • implied volatility • Leverage • Leveraged portfolios • Option pricing • Quantitative Finance • Risk horizon • Tracking errors • trading strategies
• ISBN-10: 3-319-29094-0 / 3319290940
• ISBN-13: 978-3-319-29094-2 / 9783319290942