Operational risk of option hedging

Sovan Mitra

Research output: Contribution to journalArticle

Abstract

Operational risk is increasingly being recognised as a significant area of risk and regulation, yet there exists relatively little research on it. In this paper we show that operational risk represents a fundamental risk to option hedging and investigate it by proposing a new theoretical model. We derive an exposure indicator for the operational risk of option hedging and the resulting operational risk distribution. We obtain analytical results for various risk measures including the Value at Risk equation; this includes deriving a new analytical result for the quantile function of the half-normal distributions (which will be of interest to Statisticians in general).
Original languageEnglish
Pages (from-to)194-203
Number of pages10
JournalEconomic Modelling
Volume33
DOIs
Publication statusPublished - Jul 2013

Fingerprint

Operational risk
Option hedging
Risk measures
Normal distribution
Quantile
Value at risk

Keywords

  • option hedging
  • operational risk
  • risk distribution

Cite this

Mitra, Sovan. / Operational risk of option hedging. In: Economic Modelling. 2013 ; Vol. 33. pp. 194-203.
@article{5888e451c96e41dc80a8158500ddd97e,
title = "Operational risk of option hedging",
abstract = "Operational risk is increasingly being recognised as a significant area of risk and regulation, yet there exists relatively little research on it. In this paper we show that operational risk represents a fundamental risk to option hedging and investigate it by proposing a new theoretical model. We derive an exposure indicator for the operational risk of option hedging and the resulting operational risk distribution. We obtain analytical results for various risk measures including the Value at Risk equation; this includes deriving a new analytical result for the quantile function of the half-normal distributions (which will be of interest to Statisticians in general).",
keywords = "option hedging, operational risk, risk distribution",
author = "Sovan Mitra",
year = "2013",
month = "7",
doi = "10.1016/j.econmod.2013.04.031",
language = "English",
volume = "33",
pages = "194--203",
journal = "Economic Modelling",
issn = "0264-9993",
publisher = "Elsevier",

}

Operational risk of option hedging. / Mitra, Sovan.

In: Economic Modelling, Vol. 33, 07.2013, p. 194-203.

Research output: Contribution to journalArticle

TY - JOUR

T1 - Operational risk of option hedging

AU - Mitra, Sovan

PY - 2013/7

Y1 - 2013/7

N2 - Operational risk is increasingly being recognised as a significant area of risk and regulation, yet there exists relatively little research on it. In this paper we show that operational risk represents a fundamental risk to option hedging and investigate it by proposing a new theoretical model. We derive an exposure indicator for the operational risk of option hedging and the resulting operational risk distribution. We obtain analytical results for various risk measures including the Value at Risk equation; this includes deriving a new analytical result for the quantile function of the half-normal distributions (which will be of interest to Statisticians in general).

AB - Operational risk is increasingly being recognised as a significant area of risk and regulation, yet there exists relatively little research on it. In this paper we show that operational risk represents a fundamental risk to option hedging and investigate it by proposing a new theoretical model. We derive an exposure indicator for the operational risk of option hedging and the resulting operational risk distribution. We obtain analytical results for various risk measures including the Value at Risk equation; this includes deriving a new analytical result for the quantile function of the half-normal distributions (which will be of interest to Statisticians in general).

KW - option hedging

KW - operational risk

KW - risk distribution

U2 - 10.1016/j.econmod.2013.04.031

DO - 10.1016/j.econmod.2013.04.031

M3 - Article

VL - 33

SP - 194

EP - 203

JO - Economic Modelling

JF - Economic Modelling

SN - 0264-9993

ER -