Optimal Dynamic Hedging Of Equity Options

Download Optimal Dynamic Hedging Of Equity Options full books in PDF, epub, and Kindle. Read online Optimal Dynamic Hedging Of Equity Options ebook anywhere anytime directly on your device. Fast Download speed and no annoying ads. We cannot guarantee that every ebooks is available!

Optimal Dynamic Hedging of Equity Options

Author : Andrea Petrelli
Publisher :
ISBN 13 :
Total Pages : 85 pages
Book Rating : 4.:/5 (13 download)

DOWNLOAD NOW!

Book Synopsis Optimal Dynamic Hedging of Equity Options by : Andrea Petrelli

Download or read book Optimal Dynamic Hedging of Equity Options written by Andrea Petrelli and published by . This book was released on 2019 with total page 85 pages. Available in PDF, EPUB and Kindle. Book excerpt: Attempted dynamic replication based valuation of equity options is analyzed using the Optimal Hedge Monte-Carlo (OHMC) method. Detailed here are (1) the option hedging strategy and its costs; (2) irreducible hedging errors associated with realistically fat-tailed & asymmetric return distributions; (3) impact of transaction costs on hedging costs and hedge-performance; (4) impact of conditioning hedging strategy on realized volatility. The asset returns are addressed by the General Auto-Regressive Asset Model (GARAM, Wang et al [2009]) that employs two stochastic processes to model the return magnitude and sign and results in a realistic term-structure of the fat-tails, dynamic-asymmetry, and clustering of volatility. The relationship between the option price and ensuing return versus risk characteristics of the option seller-hedger & buyer-hedger are described for different conditioning regimes in GARAM. A hurdle return is employed to assess bounding values of options that reflect hedging costs, the inevitable hedge slippage, & transaction costs. The hurdle return can also be used to make relative-value inferences (e.g., by comparing to the return-risk profile of a delta-1 position in the underlying) or even fit option values to market while still informing the trader about residual risk and its asymmetry between option buyer-hedger and seller-hedger. Tail-risk measures are shown to diminish by conditioning the hedging strategy and valuation on realized volatility. The role of fat-tails and uncertainty of realized volatility and its temporal persistence in controlling the optimal hedge ratios, irreducible hedging errors, and option-trading risk premiums are delineated.

Dynamic Hedging

Author : Nassim Nicholas Taleb
Publisher : John Wiley & Sons
ISBN 13 : 9780471152804
Total Pages : 536 pages
Book Rating : 4.1/5 (528 download)

DOWNLOAD NOW!

Book Synopsis Dynamic Hedging by : Nassim Nicholas Taleb

Download or read book Dynamic Hedging written by Nassim Nicholas Taleb and published by John Wiley & Sons. This book was released on 1997-01-14 with total page 536 pages. Available in PDF, EPUB and Kindle. Book excerpt: Destined to become a market classic, Dynamic Hedging is the only practical reference in exotic options hedgingand arbitrage for professional traders and money managers Watch the professionals. From central banks to brokerages to multinationals, institutional investors are flocking to a new generation of exotic and complex options contracts and derivatives. But the promise of ever larger profits also creates the potential for catastrophic trading losses. Now more than ever, the key to trading derivatives lies in implementing preventive risk management techniques that plan for and avoid these appalling downturns. Unlike other books that offer risk management for corporate treasurers, Dynamic Hedging targets the real-world needs of professional traders and money managers. Written by a leading options trader and derivatives risk advisor to global banks and exchanges, this book provides a practical, real-world methodology for monitoring and managing all the risks associated with portfolio management. Nassim Nicholas Taleb is the founder of Empirica Capital LLC, a hedge fund operator, and a fellow at the Courant Institute of Mathematical Sciences of New York University. He has held a variety of senior derivative trading positions in New York and London and worked as an independent floor trader in Chicago. Dr. Taleb was inducted in February 2001 in the Derivatives Strategy Hall of Fame. He received an MBA from the Wharton School and a Ph.D. from University Paris-Dauphine.

Optimal Dynamic Hedging of Multi-Asset Options

Author : Andrea Petrelli
Publisher :
ISBN 13 :
Total Pages : 50 pages
Book Rating : 4.:/5 (129 download)

DOWNLOAD NOW!

Book Synopsis Optimal Dynamic Hedging of Multi-Asset Options by : Andrea Petrelli

Download or read book Optimal Dynamic Hedging of Multi-Asset Options written by Andrea Petrelli and published by . This book was released on 2010 with total page 50 pages. Available in PDF, EPUB and Kindle. Book excerpt: Hedging and valuing multi-asset options are analyzed using the Optimal Hedge Monte-Carlo method. The average cost of hedging and the residual risks are related to the stochastic description of the underlying assets, their dependence structure, and to the option contract details. A long position in a basket of the underlying assets mixed in proportions to their hedge ratios is employed to assess a bounding rate of return on risk-capital (i.e., a hurdle rate) for the option trader-hedger. That hurdle rate is employed to assess bounding values of multi-asset derivative positions while accounting for hedging costs and the inevitable hedge slippage that determines the derivative trader's risk-capital. Sample calculations are provided for two-asset options where the option trader-hedger is long correlation and short correlation, such as best-of and worst-of options. The differences in hedging strategies between such options and junior and senior basket-put tranches are delineated. The dual roles of fat-tails for individual assets and uncertainty of realized correlation in controlling the irreducible hedging errors are also described.

Performance of Dynamic Hedging Strategies

Author : Aleš Černý
Publisher :
ISBN 13 :
Total Pages : 27 pages
Book Rating : 4.:/5 (129 download)

DOWNLOAD NOW!

Book Synopsis Performance of Dynamic Hedging Strategies by : Aleš Černý

Download or read book Performance of Dynamic Hedging Strategies written by Aleš Černý and published by . This book was released on 2020 with total page 27 pages. Available in PDF, EPUB and Kindle. Book excerpt: Suppose an investment bank consists of two desks trading in equity and equity options, and it operates in a market where equity returns are leptokurtic. It is well known (Schweizer 1994) that the optimal mean-variance trading strategy for the bank as a whole is path-dependent. This paper examines quasi-optimal strategies that preserve the path-independent nature of Black - Scholes option hedging coefficients without excessively compromising bank's overall efficiency. More generally, I investigate the issue of risk-adjusted performance measurement, attribution and investment-hedging separation between two desks trading in derivative and the underlying asset, respectively.lt;brgt;lt;brgt;It is shown that both the optimal and quasi-optimal hedging strategies require close coordination between the equity and option desks, insofar as the optimal volume of option sales depends crucially on the relative performance of the two desks. Closed-form expressions for the Sharpe ratio and Certainty Equivalent Growth Rate as well as numerical results for a model calibrated to historical FTSE 100 equity index returns are given.

Trading and Pricing Financial Derivatives

Author : Patrick Boyle
Publisher : Walter de Gruyter GmbH & Co KG
ISBN 13 : 1547401214
Total Pages : 298 pages
Book Rating : 4.5/5 (474 download)

DOWNLOAD NOW!

Book Synopsis Trading and Pricing Financial Derivatives by : Patrick Boyle

Download or read book Trading and Pricing Financial Derivatives written by Patrick Boyle and published by Walter de Gruyter GmbH & Co KG. This book was released on 2018-12-17 with total page 298 pages. Available in PDF, EPUB and Kindle. Book excerpt: Trading and Pricing Financial Derivatives is an introduction to the world of futures, options, and swaps. Investors who are interested in deepening their knowledge of derivatives of all kinds will find this book to be an invaluable resource. The book is also useful in a very applied course on derivative trading. The authors delve into the history of options pricing; simple strategies of options trading; binomial tree valuation; Black-Scholes option valuation; option sensitivities; risk management and interest rate swaps in this immensely informative yet easy to comprehend work. Using their vast working experience in the financial markets at international investment banks and hedge funds since the late 1990s and teaching derivatives and investment courses at the Master's level, Patrick Boyle and Jesse McDougall put forth their knowledge and expertise in clearly explained concepts. This book does not presuppose advanced mathematical knowledge, though it is presented for completeness for those that may benefit from it, and is designed for a general audience, suitable for beginners through to those with intermediate knowledge of the subject.

Optimal Dynamic Hedging Using Futures Under a Borrowing Constraint

Author : Akash Deep
Publisher :
ISBN 13 :
Total Pages : 40 pages
Book Rating : 4.3/5 ( download)

DOWNLOAD NOW!

Book Synopsis Optimal Dynamic Hedging Using Futures Under a Borrowing Constraint by : Akash Deep

Download or read book Optimal Dynamic Hedging Using Futures Under a Borrowing Constraint written by Akash Deep and published by . This book was released on 2002 with total page 40 pages. Available in PDF, EPUB and Kindle. Book excerpt:

Dynamic Hedging

Author : Nassim Nicholas Taleb
Publisher : John Wiley & Sons
ISBN 13 : 0471152803
Total Pages : 528 pages
Book Rating : 4.4/5 (711 download)

DOWNLOAD NOW!

Book Synopsis Dynamic Hedging by : Nassim Nicholas Taleb

Download or read book Dynamic Hedging written by Nassim Nicholas Taleb and published by John Wiley & Sons. This book was released on 1997-01-14 with total page 528 pages. Available in PDF, EPUB and Kindle. Book excerpt: Destined to become a market classic, Dynamic Hedging is the only practical reference in exotic options hedgingand arbitrage for professional traders and money managers Watch the professionals. From central banks to brokerages to multinationals, institutional investors are flocking to a new generation of exotic and complex options contracts and derivatives. But the promise of ever larger profits also creates the potential for catastrophic trading losses. Now more than ever, the key to trading derivatives lies in implementing preventive risk management techniques that plan for and avoid these appalling downturns. Unlike other books that offer risk management for corporate treasurers, Dynamic Hedging targets the real-world needs of professional traders and money managers. Written by a leading options trader and derivatives risk advisor to global banks and exchanges, this book provides a practical, real-world methodology for monitoring and managing all the risks associated with portfolio management. Nassim Nicholas Taleb is the founder of Empirica Capital LLC, a hedge fund operator, and a fellow at the Courant Institute of Mathematical Sciences of New York University. He has held a variety of senior derivative trading positions in New York and London and worked as an independent floor trader in Chicago. Dr. Taleb was inducted in February 2001 in the Derivatives Strategy Hall of Fame. He received an MBA from the Wharton School and a Ph.D. from University Paris-Dauphine.

Optimal Dynamic Hedging

Author : Sanford J. Grossman
Publisher :
ISBN 13 :
Total Pages : 38 pages
Book Rating : 4.:/5 (27 download)

DOWNLOAD NOW!

Book Synopsis Optimal Dynamic Hedging by : Sanford J. Grossman

Download or read book Optimal Dynamic Hedging written by Sanford J. Grossman and published by . This book was released on 1988 with total page 38 pages. Available in PDF, EPUB and Kindle. Book excerpt:

Optimal Dynamic Hedging in Incomplete Futures Markets

Author : Abraham Lioui
Publisher :
ISBN 13 :
Total Pages : pages
Book Rating : 4.:/5 (129 download)

DOWNLOAD NOW!

Book Synopsis Optimal Dynamic Hedging in Incomplete Futures Markets by : Abraham Lioui

Download or read book Optimal Dynamic Hedging in Incomplete Futures Markets written by Abraham Lioui and published by . This book was released on 2010 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper derives optimal hedging demands for futures contracts from an investor who cannot freely trade his portfolio of primitive assets in the context of either a CARA or a logarithmic utility function. Existing futures contracts are not numerous enough to complete the market. In addition, in the case of CARA, the nonnegativity constraint on wealth is binding and the optimal hedging demands are not identical to those that would be derived if the constraint were ignored. Fictitiously completing the market, we can characterize the optimal hedging demands for futures contracts. Closed-form solutions exist in the logarithmic case, but not in the CARA case, since then a put (insurance) written on his wealth is implicitly bought by the investor. Although solutions are formally similar to those which obtain under complete markets, incompleteness leads in fact to second best optima.

Volatility Trading, + website

Author : Euan Sinclair
Publisher : John Wiley & Sons
ISBN 13 : 0470181990
Total Pages : 228 pages
Book Rating : 4.4/5 (71 download)

DOWNLOAD NOW!

Book Synopsis Volatility Trading, + website by : Euan Sinclair

Download or read book Volatility Trading, + website written by Euan Sinclair and published by John Wiley & Sons. This book was released on 2008-06-23 with total page 228 pages. Available in PDF, EPUB and Kindle. Book excerpt: In Volatility Trading, Sinclair offers you a quantitative model for measuring volatility in order to gain an edge in your everyday option trading endeavors. With an accessible, straightforward approach. He guides traders through the basics of option pricing, volatility measurement, hedging, money management, and trade evaluation. In addition, Sinclair explains the often-overlooked psychological aspects of trading, revealing both how behavioral psychology can create market conditions traders can take advantage of-and how it can lead them astray. Psychological biases, he asserts, are probably the drivers behind most sources of edge available to a volatility trader. Your goal, Sinclair explains, must be clearly defined and easily expressed-if you cannot explain it in one sentence, you probably aren't completely clear about what it is. The same applies to your statistical edge. If you do not know exactly what your edge is, you shouldn't trade. He shows how, in addition to the numerical evaluation of a potential trade, you should be able to identify and evaluate the reason why implied volatility is priced where it is, that is, why an edge exists. This means it is also necessary to be on top of recent news stories, sector trends, and behavioral psychology. Finally, Sinclair underscores why trades need to be sized correctly, which means that each trade is evaluated according to its projected return and risk in the overall context of your goals. As the author concludes, while we also need to pay attention to seemingly mundane things like having good execution software, a comfortable office, and getting enough sleep, it is knowledge that is the ultimate source of edge. So, all else being equal, the trader with the greater knowledge will be the more successful. This book, and its companion CD-ROM, will provide that knowledge. The CD-ROM includes spreadsheets designed to help you forecast volatility and evaluate trades together with simulation engines.

Dynamic Hedging in Incomplete Markets

Author : Suleyman Basak
Publisher :
ISBN 13 :
Total Pages : 0 pages
Book Rating : 4.:/5 (733 download)

DOWNLOAD NOW!

Book Synopsis Dynamic Hedging in Incomplete Markets by : Suleyman Basak

Download or read book Dynamic Hedging in Incomplete Markets written by Suleyman Basak and published by . This book was released on 2011 with total page 0 pages. Available in PDF, EPUB and Kindle. Book excerpt: Despite much work on hedging in incomplete markets, the literature still lacks tractable dynamic hedges in plausible environments. In this article, we provide a simple solution to this problem in a general incomplete-market economy in which a hedger, guided by the traditional minimum-variance criterion, aims at reducing the risk of a non-tradable asset or a contingent claim. We derive fully analytical optimal hedges and demonstrate that they can easily be computed in various stochastic environments. Our dynamic hedges preserve the simple structure of complete-market perfect hedges and are in terms of generalized "Greeks," familiar in risk management applications, as well as retaining the intuitive features of their static counterparts. We obtain our time-consistent hedges by dynamic programming, while the extant literature characterizes either static or myopic hedges, or dynamic ones that minimize the variance criterion at an initial date and from which the hedger may deviate unless she can pre-commit to follow them. We apply our results to the discrete hedging problem of derivatives when trading occurs infrequently. We determine the corresponding optimal hedge and replicating portfolio value, and show that they have structure similar to their complete-market counterparts and reduce to generalized Black-Scholes expressions when specialized to the Black-Scholes setting. We also generalize our results to richer settings to study dynamic hedging with Poisson jumps, stochastic correlation and portfolio management with benchmarking.

Sequential Static-Dynamic Hedging for Long-Term Derivatives

Author : Tim Leung
Publisher :
ISBN 13 :
Total Pages : 8 pages
Book Rating : 4.:/5 (13 download)

DOWNLOAD NOW!

Book Synopsis Sequential Static-Dynamic Hedging for Long-Term Derivatives by : Tim Leung

Download or read book Sequential Static-Dynamic Hedging for Long-Term Derivatives written by Tim Leung and published by . This book was released on 2014 with total page 8 pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper presents a new methodology for hedging long-term financial derivatives written on an illiquid asset. The proposed hedging strategy combines dynamic trading of a correlated liquid asset (e.g. the market index) and static positions in market-traded options such as European puts and calls. Moreover, since most market-traded options are relatively short-term, it is necessary to conduct the static hedge sequentially over time till the long-term derivative expires. This sequential static-dynamic hedging strategy leads to the study of a stochastic control problem and the associated Hamilton-Jacobi-Bellman PDEs and variational inequalities. A series of transformations allow us to simplify the problem and compute the optimal hedging strategy.

A Generalized Approach to Optimal Hedging with Option Contracts

Author : Emanuele Bajo
Publisher :
ISBN 13 :
Total Pages : pages
Book Rating : 4.:/5 (13 download)

DOWNLOAD NOW!

Book Synopsis A Generalized Approach to Optimal Hedging with Option Contracts by : Emanuele Bajo

Download or read book A Generalized Approach to Optimal Hedging with Option Contracts written by Emanuele Bajo and published by . This book was released on 2015 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: In this paper we develop a theoretical model in which a firm hedges a spot position using options in presence of both quantity (production) and basis risk. Our optimal hedge ratio is fairly general, in that the dependence structure is modelled through a copula function representing the quantiles of the hedged position, and hence any quantile risk measure can be employed. We study the sensitivity of the exercise price which minimizes the risk of the hedged portfolio to the relevant parameters, and we find that the subjective risk aversion of the firm does not play any role. The only trade-off is between the effectiveness and the cost of the hedging strategy.

Employee Stock Options: Exercise Timing, Hedging, And Valuation

Author : Tim Siu-tang Leung
Publisher : World Scientific
ISBN 13 : 9813209658
Total Pages : 228 pages
Book Rating : 4.8/5 (132 download)

DOWNLOAD NOW!

Book Synopsis Employee Stock Options: Exercise Timing, Hedging, And Valuation by : Tim Siu-tang Leung

Download or read book Employee Stock Options: Exercise Timing, Hedging, And Valuation written by Tim Siu-tang Leung and published by World Scientific. This book was released on 2021-07-29 with total page 228 pages. Available in PDF, EPUB and Kindle. Book excerpt: Employee stock options (ESOs) are an integral component of compensation in the US. In fact, almost all S&P 500 companies grant options to their top executives, and the total value accounts for almost half of the total pay for their CEOs. In view of the extensive use and significant cost of ESOs to firms, the Financial Accounting Standards Board (FASB) has mandated expensing ESOs since 2004. This gives rise to the need to create a reasonable valuation method for these options for most firms that grant ESOs to their employees. The valuation of ESOs involves a number of challenging issues, and is thus an important active research area in Accounting, Corporate Finance, and Financial Mathematics.In this exciting book, the author discusses the practical and challenging problems surrounding ESOs from a financial mathematician's perspective. This book provides a systematic overview of the contractual features of ESOs and thoughtful discussions of different valuation approaches, with emphasis on three major aspects: (i) hedging strategies; (ii) exercise timing; and (iii) valuation methodologies. In addition to addressing each of these categories, this book also highlights their connections and combined effects of the cost of ESOs to firms, as well as examines the implications to modeling and valuation approaches. The book features a unique approach that combines stochastic modeling and control techniques with option pricing theory, and provides formulas and numerical schemes for fast implementation and clear illustration.

An Option Greeks Primer

Author : Jawwad Farid
Publisher : Springer
ISBN 13 : 1137371676
Total Pages : 326 pages
Book Rating : 4.1/5 (373 download)

DOWNLOAD NOW!

Book Synopsis An Option Greeks Primer by : Jawwad Farid

Download or read book An Option Greeks Primer written by Jawwad Farid and published by Springer. This book was released on 2015-03-23 with total page 326 pages. Available in PDF, EPUB and Kindle. Book excerpt: This book provides a hands-on, practical guide to understanding derivatives pricing. Aimed at the less quantitative practitioner, it provides a balanced account of options, Greeks and hedging techniques avoiding the complicated mathematics inherent to many texts, and with a focus on modelling, market practice and intuition.

Dynamic Hedging and Time-varying Optimal Hedge Ratio Estimation with Foreign Currency Futures

Author : Brian Delaney
Publisher :
ISBN 13 :
Total Pages : 95 pages
Book Rating : 4.:/5 (65 download)

DOWNLOAD NOW!

Book Synopsis Dynamic Hedging and Time-varying Optimal Hedge Ratio Estimation with Foreign Currency Futures by : Brian Delaney

Download or read book Dynamic Hedging and Time-varying Optimal Hedge Ratio Estimation with Foreign Currency Futures written by Brian Delaney and published by . This book was released on 1995 with total page 95 pages. Available in PDF, EPUB and Kindle. Book excerpt:

Optimal Static-Dynamic Hedges for Exotic Options under Convex Risk Measures

Author : Aytac Ilhan
Publisher :
ISBN 13 :
Total Pages : 25 pages
Book Rating : 4.:/5 (129 download)

DOWNLOAD NOW!

Book Synopsis Optimal Static-Dynamic Hedges for Exotic Options under Convex Risk Measures by : Aytac Ilhan

Download or read book Optimal Static-Dynamic Hedges for Exotic Options under Convex Risk Measures written by Aytac Ilhan and published by . This book was released on 2008 with total page 25 pages. Available in PDF, EPUB and Kindle. Book excerpt: We study the problem of optimally hedging exotic derivatives positions using a combination of dynamic trading strategies in underlying stocks, and static positions in vanilla options when the performance is quantified by a convex risk measure. We establish conditions for the existence of an optimal static position for general convex risk measures, and then analyze in detail the case of expected shortfall with a power loss function. Here we find conditions for uniqueness of the static hedge. We illustrate the computational challenge of computing the market-adjusted risk measure in a simple diffusion model for an option on a non-traded asset.