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The Empirical Performance of Option Implied Volatility Surface-Driven Optimal Portfolios
Guidolin, Massimo; Wang, Kai - 2022
We apply a two-step strategy to forecast the dynamics of the volatility surface implicit in option prices to all American-style options written on the stocks that have entered the Dow Jones Industrial Average Index between 2004 and 2016. We explore whether the implied volatilities extracted...
Persistent link: https://www.econbiz.de/10014235957
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Option Pricing and Hedging for Regime-Switching Geometric Brownian Motion Models
Remillard, Bruno - 2016
usually proposed in the literature. We show the solution minimizes the mean-variance hedging error under the objective measure …. Solutions for the option value and the optimal hedging strategy are easily obtained from Monte Carlo simulations. Two …
Persistent link: https://www.econbiz.de/10013004851
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An Orthogonal Series Expansions Method to Hedge and Price European-Type Options
Chan, Ron - 2017
Closed-form pricing formulae and option Greeks are obtained for European-type options using an orthogonal polynomial series -- complex Fourier series. We assume that risky assets are driven by exponential Lévy processes and stochastic volatility models. We provide a succinct error analysis to...
Persistent link: https://www.econbiz.de/10012967806
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Option Pricing and Hedging for Discrete Time Autoregressive Hidden Markov Model
Caccia, Massimo - 2017
In this paper we solve the discrete time mean-variance hedging problem when asset returns follow a multivariate … daily returns. Secondly, we present out-of-sample hedging results on S&P 500 vanilla options as well as a trading strategy … based on theoretical prices, which we compare to simpler models including the classical Black-Scholes delta-hedging approach …
Persistent link: https://www.econbiz.de/10012953054
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XVA of a Derivative on an Underlying Modelled by a Default Jump Process with an Analysis of CVA Wrong Way Risk for Bond Forwards
Lichtner, Mark - 2015
We consider the valuation and risk management of derivatives on defaultable assets such as bonds taking into account funding (FVA), cash collateral, underlying default, counterparty default (CVA) and default correlation using joint default poisson process. The framework can be considered as an...
Persistent link: https://www.econbiz.de/10013024060
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Discrete-Time Quadratic Hedging of Barrier Options in Exponential Lévy Model
Černý, Aleš - 2019
We examine optimal quadratic hedging of barrier options in a discretely sampled exponential Lévy model that has been … realistically calibrated to reflect the leptokurtic nature of equity returns. Our main finding is that the impact of hedging errors …
Persistent link: https://www.econbiz.de/10012903524
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Hedge Filtering
Hammarlid, Ola; Höök, Josef - 2021
In this paper we present a method for calculating the entire hedge surface of a derivative who’s future underlying asset has been simulated by a market simulator for example with the Monte Carlo method. Our method is built from work on penalized filtering techniques and is applied on a grid of...
Persistent link: https://www.econbiz.de/10013228561
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On the Performance of Asymptotic Locally Risk Minimizing Hedges in the Heston Stochastic Volatility Model
Ting, Sai Hung Marten - 2011
This paper investigates the use of the asymptotic Heston solution in locally risk minimizing hedging. The asymptotic …
Persistent link: https://www.econbiz.de/10013132896
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Calibration, Simulation and Hedging in a Heston Libor Market Model with Stochastic Basis
Amin, Ahsan - 2010
We follow Mercurio's extension of the LIBOR market model with stochastic Basis spreads and model the joint evolution of forward rates belonging to the discount curve and corresponding spreads with FRA rates. We consider Heston stochastic-volatility dynamics and show how to calculate the swaption...
Persistent link: https://www.econbiz.de/10013136298
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Three-Benchmarked Risk Minimization for Jump Diffusion Markets
Du, Ke - 2012
The paper discusses the problem of hedging not perfectly replicable contingent claims by using a benchmark, the … pricing and hedging for an increasing number of not fully replicable benchmarked contingent claims …
Persistent link: https://www.econbiz.de/10013098521