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Author :
Publisher :
ISBN 13 :
Total Pages : 161 pages
Book Rating : 4.:/5 (921 download)
Download or read book Optimal Hedging Under Transaction Costs and Implied Trees written by and published by . This book was released on 2003 with total page 161 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Author : Artur Sepp
Publisher :
ISBN 13 :
Total Pages : 37 pages
Book Rating : 4.:/5 (13 download)
Download or read book When You Hedge Discretely written by Artur Sepp and published by . This book was released on 2015 with total page 37 pages. Available in PDF, EPUB and Kindle. Book excerpt: We consider the delta-hedging strategy for a vanilla option under the discrete hedging and transaction costs, assuming that an option is delta-hedged using the Black-Scholes-Merton model with the log-normal volatility implied by the market price of the option. We analyze the expected profit-and-loss (P&L) of the delta-hedging strategy assuming the four possible dynamics of asset returns under the statistical measure: the log-normal diffusion, the jump-diffusion, the stochastic volatility and the stochastic volatility with jumps. For all of the four models, we derive analytic formulas for the expected P&L, expected transaction costs, and P&L volatility assuming hedging at fixed times. Using these formulas, we formulate the problem of finding the optimal hedging frequency to maximize the Sharpe ratio of the delta-hedging strategy. Also, we show that the Sharpe ratio of the delta-hedging strategy can be improved by incorporating the price and delta bands for the rebalancing of the delta-hedge and provide analytical approximations for computing the optimal bands in our optimization approach. As illustrations, we show that our method provides a very good approximation to the actual Sharpe ratio obtained by Monte Carlo simulations under the time-based re-hedging. In contrary to Monte Carlo simulations, our analytic approach provide a fast and an accurate way to estimate the risk-reward characteristic of the delta-hedging strategy for real time computations.
Author : Stein-Erik Fleten
Publisher :
ISBN 13 :
Total Pages : pages
Book Rating : 4.:/5 (112 download)
Download or read book Optimal Hedging Strategies for Multi-periodGuarantees in the Presence of Transaction Costs:A Stochastic Programming Approach written by Stein-Erik Fleten and published by . This book was released on 2006 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt:
Author : Kenji Kamizono
Publisher :
ISBN 13 :
Total Pages : 216 pages
Book Rating : 4.:/5 (48 download)
Download or read book Hedging and Optimization Under Transaction Costs written by Kenji Kamizono and published by . This book was released on 2001 with total page 216 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Author : Stein-Erik Fleten
Publisher :
ISBN 13 :
Total Pages : 17 pages
Book Rating : 4.:/5 (129 download)
Download or read book Optimal Hedging Strategies for Multi-Period Guarantees in the Presence of Transaction Costs written by Stein-Erik Fleten and published by . This book was released on 2012 with total page 17 pages. Available in PDF, EPUB and Kindle. Book excerpt: Multi-period guarantees are often embedded in life insurance contracts. In this paper we consider the problem of hedging these multi-period guarantees in the presence of transaction costs. We derive the hedging strategies for the cheapest hedge portfolio for a multi-period guarantee that with certainty makes the insurance company able to meet the obligations from the insurance policies it has issued. We find that by imposing transaction costs, the insurance company reduces the rebalancing of the hedge portfolio. The cost of establishing the hedge portfolio also increases as the transaction cost increases. For the multi-period guarantee there is a rather large rebalancing of the hedge portfolio as we go from one period to the next. By introducing transaction costs we find the size of this rebalancing to be reduced. Transaction costs may therefore be one possible explanation for why we do not see the insurance companies performing a large rebalancing of their investment portfolio at the end of each year.
Author : Joaquín Arias Segura
Publisher : IICA
ISBN 13 : 9789290394730
Total Pages : 90 pages
Book Rating : 4.3/5 (947 download)
Download or read book Factores críticos para la cobertura de riesgos en transacciones bursátiles de productos agroalimentarios written by Joaquín Arias Segura and published by IICA. This book was released on 2000 with total page 90 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Author : Roy Kouwenberg
Publisher :
ISBN 13 :
Total Pages : pages
Book Rating : 4.:/5 (129 download)
Download or read book Hedging Options Under Transaction Costs and Stochastic Volatility written by Roy Kouwenberg and published by . This book was released on 2004 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: In this paper we consider the problem of hedging contingent claims on a stock under transaction costs and stochastic volatility. Extensive research has clearly demonstrated that the volatility of most stocks is not constant over time. As small changes of the volatility can have a major impact on the value of contingent claims, hedging strategies should try to eliminate this volatility risk. We propose a stochastic optimization model for hedging contingent claims that takes into account the effects of stochastic volatility, transaction costs and trading restrictions. Simulation results show that our approach could improve performance considerably compared to traditional hedging strategies.
Author : Laurent Gauthier
Publisher :
ISBN 13 :
Total Pages : pages
Book Rating : 4.:/5 (129 download)
Download or read book A Transaction Cost Convergence Result for General Hedging Strategies written by Laurent Gauthier and published by . This book was released on 1998 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper generalizes the result of Leland (1985) to hedging strategies that use not only the underlying but all kinds of otions. These hedging strategies are a generalization of static hedging. In addition, the result is valid for all shapes of payoff, including path-dependent. Two cases of hedging methods are studied. The first one, as in Leland, assumes rehedging takes place at fixed time intervals. The second one supposes rehedging takes place when the delta moves by more than a fixed proportion. The pricing of securities in that frame can be done by solving a non-linear partial differential equation, and optimal hedging strategies, using various kinds of options, can be found so as to minimize transaction costs.
Author : Artur Sepp
Publisher :
ISBN 13 :
Total Pages : 37 pages
Book Rating : 4.:/5 (129 download)
Download or read book An Approximate Distribution of Delta-Hedging Errors in a Jump-Diffusion Model with Discrete Trading and Transaction Costs written by Artur Sepp and published by . This book was released on 2014 with total page 37 pages. Available in PDF, EPUB and Kindle. Book excerpt: We introduce a jump-diffusion model for asset returns with jumps drawn from a mixture of normal distributions and show that this model adequately fits the historical data of the Samp;P500 index. We consider delta-hedging strategy for vanilla options under the diffusion model (DM) and the proposed jump-diffusion model (JDM) assuming discrete trading intervals and transaction costs, and derive an approximation for the probability density function (PDF) of the profit-and-loss (Pamp;L) of the delta-hedging strategy under the both models. We find that, under the log-normal model by Black-Scholes-Merton, the actual PDF of the Pamp;L can be well approximated by the chi-squared distribution with specific parameters. We derive an approximation for the Pamp;L volatility in the DM and JDM. We show that, under the both DM and JDM, the expected loss due to transaction costs is inversely proportional to the square root of the hedging frequency. We apply the mean-variance analysis to find the optimal hedging frequency given the hedger's risk tolerance. Since under the JDM it is impossible to reduce the Pamp;L volatility by increasing the hedging frequency, we consider an alternative hedging strategy, following which the Pamp;L volatility can be reduced by increasing the hedging frequency.
Author : Jacek Gondzio
Publisher :
ISBN 13 :
Total Pages : 29 pages
Book Rating : 4.:/5 (247 download)
Download or read book Hedging Options Under Transaction Costs and Stochastic Volatility written by Jacek Gondzio and published by . This book was released on 1999 with total page 29 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Author : Terje Lensberg
Publisher :
ISBN 13 :
Total Pages : 20 pages
Book Rating : 4.:/5 (13 download)
Download or read book Hedging Without Sweat written by Terje Lensberg and published by . This book was released on 2017 with total page 20 pages. Available in PDF, EPUB and Kindle. Book excerpt: Hedging in the presence of transaction costs leads to complex optimization problems. These problems typically lack closed-form solutions, and their implementation relies on numerical methods that provide hedging strategies for specific parameter values. In this paper we use a genetic programming algorithm to derive explicit formulas for near-optimal hedging strategies under nonlinear transaction costs. The strategies are valid over a large range of parameter values and require no information about the structure of the optimal hedging strategy.
Author : Aleš Černý
Publisher :
ISBN 13 :
Total Pages : 41 pages
Book Rating : 4.:/5 (129 download)
Download or read book The Risk of Optimal, Continuously Rebalanced Hedging Strategies and Its Efficient Evaluation Via Fourier Transform written by Aleš Černý and published by . This book was released on 2020 with total page 41 pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper derives a closed-form formula for the hedging error of optimal and continuously rebalanced hedging strategies in a model with leptokurtic IID returns and, in contrast to the standard Black-Scholes result, shows that continuous hedging is far from riskless even in the absence of transaction costs. Our result can be seen as an extension of the Capital Asset Pricing Model and the Arbitrage Pricing Theory, allowing for intertemporal risk diversification.lt;brgt;lt;brgt;The paper provides an efficient implementation of the optimal hedging strategy and of the hedging error formula via fast Fourier transform and demonstrates their speed and accuracy. We compute the size of hedging errors for individual options based on the historical distribution of returns on FT100 equity index as a function of moneyness and time to maturity. The resulting option price bounds are found to be non-trivial, and largely insensitive to model parameters, while the optimal hedging strategy remains virtually identical to the standard Black-Scholes delta hedge. Thus, with leptokurtic returns Black-Scholes price is the right value to hedge towards, but not the right value to price at.
Author :
Publisher :
ISBN 13 :
Total Pages : 43 pages
Book Rating : 4.:/5 (937 download)
Download or read book Hedging Strategy Optimization Under Proportional Transaction Costs written by and published by . This book was released on 2004 with total page 43 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Author : Robert A. Jarrow
Publisher : World Scientific
ISBN 13 : 9812819223
Total Pages : 609 pages
Book Rating : 4.8/5 (128 download)
Download or read book Financial Derivatives Pricing written by Robert A. Jarrow and published by World Scientific. This book was released on 2008 with total page 609 pages. Available in PDF, EPUB and Kindle. Book excerpt: This book is a collection of original papers by Robert Jarrow that contributed to significant advances in financial economics. Divided into three parts, Part I concerns option pricing theory and its foundations. The papers here deal with the famous Black-Scholes-Merton model, characterizations of the American put option, and the first applications of arbitrage pricing theory to market manipulation and liquidity risk.Part II relates to pricing derivatives under stochastic interest rates. Included is the paper introducing the famous HeathOCoJarrowOCoMorton (HJM) model, together with papers on topics like the characterization of the difference between forward and futures prices, the forward price martingale measure, and applications of the HJM model to foreign currencies and commodities.Part III deals with the pricing of financial derivatives considering both stochastic interest rates and the likelihood of default. Papers cover the reduced form credit risk model, in particular the original Jarrow and Turnbull model, the Markov model for credit rating transitions, counterparty risk, and diversifiable default risk.
Author : Ola Backman
Publisher :
ISBN 13 :
Total Pages : 58 pages
Book Rating : 4.:/5 (936 download)
Download or read book Analysis and Evaluation of Hedging Strategies in the Presence of Transaction Costs written by Ola Backman and published by . This book was released on 2001 with total page 58 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Author : Obi-Wan Yoda
Publisher : BICs Press
ISBN 13 : 0976425300
Total Pages : 367 pages
Book Rating : 4.9/5 (764 download)
Download or read book Bics 4 Derivatives written by Obi-Wan Yoda and published by BICs Press. This book was released on 2004-12 with total page 367 pages. Available in PDF, EPUB and Kindle. Book excerpt: Please Checkout http://www.4bics.com/
Author : Thomas O. Meyer
Publisher :
ISBN 13 :
Total Pages : 27 pages
Book Rating : 4.:/5 (129 download)
Download or read book Determining the Optimal Dynamic Rebalancing Frequency for Delta-Neutral Hedges in Liffe Short-Term Interest-Rate Markets written by Thomas O. Meyer and published by . This book was released on 1999 with total page 27 pages. Available in PDF, EPUB and Kindle. Book excerpt: Evidence provided by market practitioners suggests that use of so-called quot;delta-neutralquot; hedging strategies is a common and effective approach. Delta-neutral (DN) strategies are derived from the well-known option pricing model of Black and Scholes (1973) or specifically here, the Black (1976) model for valuing interest-rate options on futures contracts. The general goal of a DN hedging approach is to make a combined option/futures portfolio immune to changes in the underlying asset (UA).The principal objective of this research is to examine DN hedging effectiveness using differing portfolio rebalancing frequencies where the market-place considerations of both transaction costs (TCs) and returns/costs of margin requirements (MRs) are accounted for explicitly in the portfolio return calculations. In this context, the formulas developed for return calculations specifically incorporate the accounting recommendations suggested jointly in a publication by the London International Financial Futures and Options Exchange (LIFFE) and Price Waterhouse (1995).This analysis considers hedging effectiveness (HE) along three dimensions, namely 1) traditional risk-minimization; 2) portfolio return maximization; and 3) the optimal risk-return tradeoff using the HBS measure developed and refined by Howard and D'Antonio (1987). Results are largely consistent across the Short Sterling, Euromark and Euroswiss markets and provide insight into the best hedging approach over the period analyzed in order to accomplish a specific objective. Firstly a comparison of returns inclusive of TCs/MRs to those where they are excluded evidences statistically significant differences using parametric tests. The implication is that analysis where these quot;market imperfectionsquot; are ignored may yield misleading results. The second and third major findings suggest, not surprisingly, that hedged portfolio returns (variances) are significantly higher (lower) when portfolio rebalancing occurs less (more) frequently. The final result is that when the Howard/D'Antonio HBS risk-return measure is used to assess the optimal hedging rebalancing strategy in the presence of TCs/MRs, the uniform conclusion is that a passive hedging approach yields the best risk-return tradeoff.
