Wolfgang Bühler

An empirical comparison of forward-rate and spot-rate models for valuing interest-rate options

Our main goal is to investigate the question of which interest-rate options valuation models are better suited to support the management of interest-rate risk. We use the German market to test seven spot-rate and forward-rate models with one and two factors for interest-rate warrants for the period from 1990 to 1993. We identify a one-factor forward-rate model and two spot-rate models with two factors that are not significantly outperformed by any of the other four models. Further rankings are possible if additional criteria are applied. Copyright The American Finance Association 1999.

Valuation of Electricity Futures: Reduced-Form vs. Dynamic Equilibrium Models

Equilibrium and reduced-form models are partly competing, partly complementary approaches to value electricity futures. We present the first empirical comparison of a one-factor reduced-form model and a demand driven dynamic equilibrium model. The contribution to the literature is twofold. First, on the theoretical side we develop a dynamic generalization of the static model by Bessembinder and Lemmon. As a result we endogenously derive the term structure of futures prices and risk premia. Second, on the empirical side we test both models using price data from Nord Pool. Our main findings are as follows. (1) The equilibrium model is able to explain the increasing volatility and right-skewness of futures prices for a decreasing time to maturity. (2) The cost function in the equilibrium model has to be parameterized by the water reservoir level to obtain reasonable spot and futures prices. (3) The equilibrium model provides better out-of-sample estimates of futures prices than the reduced-form model, and it is able to capture pricepeaks.

Systemic Risk: Is the Banking Sector Special?

In this paper, we empirically investigate the degree of systemic risk in the U.S. banking sector versus other industry sectors. We characterize the systemic risk in each sector by the lower tail dependence of stock returns. Our study differs from extant literature in three respects. First, we compare the degree of systemic risk in the banking sector with other sectors in the economy. Second, we analyze how systemic risk depends on the state of the stock market and the economy. Third, we compare the systemic risk in the commercial and the investment banking sectors and also investigate the systemic risk during the recent financial crisis. Our study shows that the systemic risk in the banking sector is significantly larger than in all other sectors of the economy. In particular, it differs from the systemic risk in the insurance sector, the second most strongly regulated financial subsystem. Moreover, the degree of systemic risk for the banking sector is higher under adverse market conditions. Finally, we document a substantial increase of systemic risk during the financial crisis.

Dynamic Equilibrium Valuation of Electricity Futures

We propose a dynamic competitive equilibrium model for pricing electricity futures. With exogenous demand and a convex function of marginal production cost, we endogenously receive a term structure of futures prices and futures price premia. The multi-period setting enables us to receive the futures price evolution until maturity and to evaluate cascade futures as they are common e. g. at Nord Pool and the European Energy Exchange. Our model allows to incorporate seasonality of electricity demand which is a major component of electricity prices. A comprehensive comparative static analysis concludes our paper.

Term Structures of Liquidity Premia in the U.S. Treasury Market

The issuing policy of the U.S. Treasury allows us to unambiguously isolate maturity-dependent liquidity premia in the Treasury market. We determine and analyze three term structures of liquidity premia obtained from observed yields of coupon STRIPS, observed yields of principal STRIPS, and synthetic yields derived via the bootstrapping of Treasury notes and bonds. Considering liquidity premia between coupon STRIPS and Treasury notes, we surprisingly find that short-term coupon STRIPS are more liquid than Treasury notes whereas long-term coupon STRIPS are less liquid. This structure is highly persistent and can be explained by stripping activity and volume, business uncertainty, and the Feds monetary policy. In contrast, principal STRIPS do not trade at a significant yield difference relative to Treasury notes. Finally, we provide a liquidity-based explanation for the empirical puzzle that coupon and principal STRIPS with exactly the same cash flows trade at different yields.

Hedging langfristiger Lieferverpflichtungen mit kurzfristigen Futures: möglich oder unmöglich?

SummarySince the crisis of the Metallgesellschaft AG in 1993, their roll over hedging strategy with short-term oil futures has been a subject of controversal debate. The main issues of this controversy are whether a roll over hedge is at all appropriate and what hedge-ratios should be used. In this paper we derive minimum risk hedging strategies based on theoretical pricing models. These models contain either the spot price of oil or both the spot price and the convenience yield as stochastic factors. In the empirical part of the paper we develop a data based simulation model, which is used to generate realistic paths of spot and futures prices. Based on these prices we compare the different strategies in respect to their ability to reduce risk. It turns out that only one of the hedging strategies achieves a risk reduction compared to an unhedged position.

Steuer-Klientels und optimale Emissionskonditionen für DM-Anleihen — Eine empirische Studie

Im deutschen Steuerrecht wird bei einer Vielzahl von Steuerarten bewust oder auf Grund einer ungenugenden okonomischen Analyse steuerlicher Regelungen gegen den Grundsatz der Entscheidungsneutralitat der Besteuerung verstosen.1 Als Folge einer steuerlich ungleichen Behandlung okonomisch vergleichbarer Sachverhalte ergeben sich regelmasig Steuerausweichhandlungen der hiervon betroffenen Wirtschaftssubjekte.2

Optionsbewertung bei endogenem Preis des Basisinstruments: Der Fall der Glattstellungsoption

SummaryIt has been reported in numerous empirical studies that trading in options or theexercising of options influences the price of the underlying and as a consequence‍the value of the option. The traditional option pricing theory does not take intoaccount this interaction. In this paper, we propose a model where the price of the‍underlying is adversely affected when the option is exercised. Thus, there is abidirectional relation between the prices of the option and the underlying. Based‍on this model, we analyze the effect of exercising an option on the option value.

Analyse der Kündigungspolitik von Bund, Bahn und Post

Die Rentenmarkte wurden in den letzten Jahren durch die Emission von Anleihen mit innovativen Ausstattungsmerkmalen gepragt. Dadurch wurde eine der bedeutendsten traditionellen Anleihebedingungen, das ordentliche Kundigungsrecht des Emittenten, zunehmend aus dem Interesse der Marktteilnehmer verdrangt. Dennoch ist nach wie vor ein groser Teil der an den nationalen und internationalen Rentenmarkten umlaufenden Anleihen kundbar.

Optimale Arbitragestrategien in Terminmärkten

Der folgende Beitrag analysiert das optimale Verhalten eines Investors, der Arbitrage zwischen Kassa- und Futuresmarkt betreibt. Gegenuber dem Standardmodell der cash & carry-Arbitrage wird der zulassige Strategieraum des Arbitrageurs erweitert, indem berucksichtigt wird, das der Arbitrageur in der Vergangenheit eingegangene Arbitragepositionen jederzeit vor Falligkeit glattstellen kann. ; The following article analyses the optimal arbitrage strategy of an investor in the spot and in the futures market. In contrast to the cost of carry model, the arbitrageur is not obliged to hold positions until maturity, but he may unwind arbitrage positions before maturity whenever it is favourable to hirn.