발표제목:
Derivatives: Are they the Alpha and Omega of Risks? (From Subprime Mortgages to Apartment Options)
발표내용:
In this paper, we propose an issue on derivatives as hedging tools and sources of risks at the same time. The recent global financial crisis originated from a
liquidity
crunch from the U.S. mortgage market and it rapidly widespread worldwide. The turmoil was caused by
massive reliance on derivatives such as
structured and
securitized financial securities. The f
inancial market crises have hampered economic activities in many ways. Especially the i
mpact on
real estate market was huge. In Korea, the prices of real estate such as houses and apartments have been falling continually since 2007. Many construction companies have lots of unsold apartments which could result in bankruptcy. To solve this problem, a few construction companies began to provide potential apartment buyers with free options such as withdrawal guarantee option, principal guarantee option, premium guarantee option, and buy-back option.
To calculate the option prices, the stochastic process of the underlying apartment price index and volatility were modeled using AR(1) and GARCH(1,1), respectively. And the conditional Esscher transform is considered to find a risk neutral measure. After the calculation of option prices, risk sensitivity analysis was done. And a case study followed to check the risks of bankruptcy. Finally a discussion was given regarding the new source of risks from issuing apartment options.