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Taleb and Holy Grail Distributions. In economics and finance, a Taleb distribution is the statistical profile of an investment which normally provides a payoff of small positive returns, while carrying a small but significant risk of catastrophic losses.
In the past, most people in the market believed that convertible bond arbitrage was mainly due to convertible underpricing. [1] However, recent studies find empirical evidence that convertible bonds usually generate relatively large positive gammas that can make delta-neutral portfolios highly profitable.
Because of the large number of stocks involved, the high portfolio turnover and the fairly small size of the effects one is trying to capture, the strategy is often implemented in an automated fashion and great attention is placed on reducing trading costs. [2] Statistical arbitrage has become a major force at both hedge funds and investment banks.
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The portfolio's delta (assuming the same underlier) is then the sum of all the individual options' deltas. This method can also be used when the underlier is difficult to trade, for instance when an underlying stock is hard to borrow and therefore cannot be sold short .
In mathematical finance, a replicating portfolio for a given asset or series of cash flows is a portfolio of assets with the same properties (especially cash flows). This is meant in two distinct senses: static replication, where the portfolio has the same cash flows as the reference asset (and no changes need to be made to maintain this), and dynamic replication, where the portfolio does not ...
Forecasted load shape profile (in dark blue) and forward contracts for base load, peak load and several hourly contracts (in orange) bought under the assumption that buying energy on the spot market is cheaper than selling.
Portfolio optimization is the process of selecting an optimal portfolio (asset distribution), out of a set of considered portfolios, according to some objective.The objective typically maximizes factors such as expected return, and minimizes costs like financial risk, resulting in a multi-objective optimization problem.