Market Risk , Model Risk and Issuing Risk for Financial Institution writing Derivative Warrant ：Historical Simulation Evidence in Taiwan

• Main Authors: Chin-Hao Chen, 陳清和
• Other Authors: Chin-Shen Lee
• Format: Others
• Language: zh-TW
• Published: 2000
• Online Access: http://ndltd.ncl.edu.tw/handle/75362477640043589183

碩士 === 銘傳大學 === 金融研究所 === 88 === This thesis investigates market risk and model risk for financial institutions writing derivative warrants in Taiwan markets. Important market imperfections such as transaction costs and primary market effects are considered in the simu-lation design. Understanding model risk in the valuation and trading of derivative securities is particularly important for emerging markets, because asset returns are too fat-tailed to be normal, and volatility is hard to forecast accurately by any method and forecast errors remain very large. The historical simulation results show that model risk is remarkable for der-ivatives warrant issuers in Taiwan market. For different under-lying stocks, market risk and model risk is highest for under-lying stock being in the high tech industry. Some risk control strategies, including shortening the issuing period, marking up for volatility, and issuing strategy base on volatility, are discussed for derivative issuers. The simulation results demon-strate that risk might possibly be reduced if financial insti-tutions write warrants whenever short run (weekly) volatility of underlying asset is larger than its 30-day historical volatil