Integrated dynamic models for hedging international portfolio risks

Nikolas Topaloglou, Hercules Vladimirou and Stavros Zenios

European Journal of Operational Research, 2020, vol. 285, issue 1, 48-65

Abstract: We develop scenario-based stochastic programming models for hedging the risks of international portfolios using options. The models provide increasing level of integration in managing market and foreign exchange (FX) risks. We start with a single-stage model with currency options for selective hedging of FX risks, while market risk is addressed through diversification, we add stock options to hedge market risks, and add quantos and currency options to develop an integrated model, using an innovative method to price quantos on the scenario tree underpinning the stochastic program. The models are extended to multi-stage settings.

Keywords: Stochastic programming; International portfolios; Selective hedging; Eurozone crisis; Options pricing (search for similar items in EconPapers)
Date: 2020
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Citations: View citations in EconPapers (6)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:ejores:v:285:y:2020:i:1:p:48-65

DOI: 10.1016/j.ejor.2019.01.027

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