
Ludger HentschelVersor Investments · Investments
Ludger Hentschel
Doctor of Philosophy
About
23
Publications
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Introduction
Research for systematic alternative investments using finance, statistics/machine learning, and Python/Matlab.
Publications
Publications (23)
In this article, first published in 1994, the authors aimed to defuse the widespread hysteria about derivatives fueled by media accounts (like Fortune magazine's cover story in the same year) by offering a systematic analysis of the risks to companies, investors, and the entire financial system associated with the operation of the relatively new de...
,Management,fees compensate,active investment,managers,for deliv- ering,alpha,to investors.,It is natural,to consider,the,fees as a fraction,of al- pha, not as a fraction of assets, as is commonly done. The paper shows how to measure,fees as a fraction,of alpha,for standard,long-only,and,hedge,fund,fee structures.,Under,plausible,assumptions,about,...
I study how strategic alliances and their impact on future competitive incentives can motivate interfirm equity sales. In the model, an alliance between an entrepreneurial firm and an established firm improves efficiency for both. However, the requisite knowledge transfer heightens the established firm's incentive to enter one of its partner's mark...
Estimating implied volatility by inverting the Black-Scholes formula is subject to considerable error when option characteristics are observed with plausible errors. Especially for options away from the money, large changes in volatility produce small changes in option prices. Conversely, small errors in option prices and other option characteristi...
We measure the size and sources of gains from international diversification using metrics that are independent of currency choices. When we apply these measures to industry sector portfolios for six large equity markets, we find that, offered costless access to a foreign market, investors would construct portfolios with substantial leverage to obta...
Public discussion about corporate use of derivatives focuses on whether firms use derivatives to reduce or increase firm risk. In contrast, empirical, academic studies of corporate derivatives-use take it for granted that firms hedge with derivatives. Using data from financial statements of 425 large U.S. corporations, we investigate whether firms...
The nature of corporate hedging behavior is largely unexplored in the existing empirical literature. We attempt to fill this gap by analyzing data from annual financial statements of 425 large US corporations. The sample reveals that many firms actively manage their exposures with sizable derivative positions. Non-financial firms are active in both...
The debate about risks and regulation in derivatives markets has failed to provide a clear analysis of what the risks are and whether regulation is a useful tool for their control. The debate is particularly confusing in the area of what has been termed "systemic" risk. This article analyzes the risks associated with derivatives transactions. We ar...
This paper reviews the economic literature on the role of fees in patent systems. Two main research questions are usually addressed: the impact of patent fees on the behavior of applicants and the question of optimal fees. Studies in the former group confirm that a range of fees affect the behavior of applicants and suggest that a patent is an inel...
: The debate over risks and regulation in derivatives markets has failed to provide a clear analysis of what risks are and whether regulation is useful for their control. In this paper we provide a parametric model to analyze default risk in derivative contracts. A firm is less likely to default on an obligation on derivatives than on its corporate...
We model default risk in derivative contracts. Firms are less likely to default on derivatives than on corporate bonds because bonds are always liabilities, while derivatives can be assets. We provide an upper bound for default risk in derivatives, one substantially lower than appears to be implied by public debate over derivatives. Systemic risk i...
This paper develops a parametric family of models of generalized autoregressive heteroskedasticity (GARCH). The family nests the most popular symmetric and asymmetric GARCH models, thereby highlighting the relation between the models and their treatment of asymmetry. Furthermore, the structure permits nested tests of different types of asymmetry an...
The debate about risks and regulation in the markets for derivatives has failed to provide a clear analysis of what the risks are and whether regulation is a useful tool to address these risks. The debate is most confusing in the area of what has been termed 'systemic' risk. This paper provides a clear analysis of the risks associated with derivati...
It seems plausible that an increase in stock market volatility raises required stock returns, and thus lowers stock prices. We develop a formal model of this volatility feedback effect using a simple model of changing variance (a quadratic generalized autoregressive conditionally heteroskedastic, or QGARCH, model). Our model is asymmetric and helps...
Managers who choose to undertake a repurchase tender offer have not only superior information about the value of the company, but also control over the offer's characteristics. Managers can use their discretion to maximize value for shareholders, or they may behave opportunistically in a manner that is detrimental to shareholders. Using an economet...
Option hedge ratios can be computed from observable prices and im- plied volatilities. Small, realistic measurement errors in these inputs are ampli- fied in some hedge ratios and lead to substantial noise in estimates of the hedge ratios and large hedging errors. The paper compares hedge ratios computed from ecient implied volatility estimates to...
We introduce a simple and eective numerical solution of the static portfolio problem for an investor with power utility. Unlike generic approaches to this problem, our algorithm finds the unique solution with nonnegative wealth if it exists. Generic algorithms tend to converge at any one of the large number of local optima.
We call markets integrated when, ignoring transaction costs, there are no arbitrage profit opportunities in the combined markets. Using this defini- tion, we test for integration among the government bond markets of the United States, the United Kingdom, and Germany. Our tests focus on the behavior of bond prices denominated in units of a numeraire...