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Volume 31 - Numéro 1

June 2010

Exchange Options when One Underlying Price Can Jump - 15 June 2010

QUITTARD-PINON, François ; RANDRIANARIVONY, Rivo

Many problems in life insurance and finance can be described in terms of exchange options. These contracts give their holders the right to exchange an asset against another one at some specified later date. Exchange options were introduced in the classical diffusive framework where an explicit formula can be obtained for the price. This article extends this framework by taking jumps into account. In the particular case where one asset follows a jump diffusion model, the present authors present two alternative approaches for the pricing of these exchange options. The first one is a complete probabilistic approach where a quasi-closed form formula can be obtained. The second one is based on the generalized Fourier transform approach. With the latter, this article gives a general methodology for pricing exchange options when one underlying can jump. This methodology can then be used in many areas such as the study of guaranteed funds in life insurance.

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Volatility regimes and liquidity co-movements in cap-based portfolios - 15 June 2010

BEAUPAIN, Renaud ; GIOT, Pierre ; PETITJEAN, Mikael

In contrast with prior studies focused on market-wide liquidity co-movements, we study class-wide liquidity co-movements and condition the analysis on volatility regimes using the Markov switching methodology. By defining three regimes of volatility (low, normal and high), we can investigate whether, and to what extent, liquidity co-movements in cap-based portfolios are affected by volatility fluctuations. As our analysis points out, class-wide shocks dominate stock-specific shocks in low volatility regimes for both large and mid caps. For small caps, cross-sectional statistical evidence of liquidity co-movements is weak in both high and low volatility regimes. Evidence indicates that failure to recognise the importance of volatility to determine class-wide variations in liquidity could significantly alter the performance and risk of size-based portfolios.

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Mathematical Methods for Financial Markets - 15 June 2010

JEANBLANC, Monique ; YOR, Marc ; CHESNEY, Marc

Mathematical Methods for Financial Markets succeeds to be both an excellent finance textbook and an excellent maths textbook. Contrary to what the profane may believe, it is therefore not just a textbook in financial mathematics or in mathematical finance. The enlighten reader shall be able to find in this book essential elements to understand options markets...

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Employee's investment behaviors in a company based savings plan - 15 June 2010

AUBERT, Nicolas ; RAPP, Thomas

This paper investigates the investment behaviors of 44,649 employees working in a CAC 40 index listed company. The company savings plan offers its employees a choice among various asset categories generally listed by financial institutions. We first describe employees’ saving behaviors for each asset category offered within the company savings plan. We then focus on the individual determinants of employees’ participation in each asset category and the total amount invested in each asset category. We finally investigate the individual determinants of portfolio breadth in terms of number of funds selected and number of asset categories selected. We document extreme saving strategies such as high investment in company stocks. We find the existence of a positive association between the number of funds offered, and the number of funds chosen within the plan. Our results emphasize how several proxies of human capital are associated with company-based investment strategies.

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