Sami Attaoui

Interest Rate Risk Hedging Demand Under a Gaussian Framework

This article analyzes the state variables Merton-Breeden hedging demand for an investor endowed with a utility function over both intermediate consumption and terminal wealth. Based on the three-factor model of Babbs and Nowman (1999), we show that this demand can be simply expressed as weighted average zero-coupon bonds sensitivities to these factors. The weighting parameter is actually the proportion of wealth our investor sets aside for future consumption rather than for terminal wealth.

Calendar Spreads, Risk Premium and the Convenience Yield

This paper studies optimal calendar spreads in commodity futures markets while taking into account a stochastic convenience yield. We show that a convenience yield imperfectly correlated with the spot commmodity price results in an optimal strategy composed of two commodity futures contracts. These strategies reveal a calendar spread effect through the positive correlation between the two futures contracts. These strategies can easily be computed and analyzed under the Samuelson hypothesis.