Publicação
Dynamic hedging of equity call options
| Resumo: | The theory of option pricing assumes generally that options can be replicated through dynamic hedging in the underlying stock. First, we outline the assumptions behind the popular models, such as regarding the distribution of stock returns, and the probability of the terminal stock value reaching certain levels. Then, we define the common "Greeks" of call options, that is the sensitivity of option values to changes in particular variables. Figures show the sensitivity of those Greeks to stock price levels, and time to expiration. Then, we attempt to show that delta and complex hedges, using options with more than one exercise price, are the "solutions" for simultaneous equations establishing delta and gamma (and eventually vega) neutrality, subject to a budget constraint. Finally, we examine the relative profitability and effectiveness (in terms of variance reduction) of delta hedging strategies for three trade positions (in, at and out-of-the-money). |
|---|---|
| Autores principais: | Duque, João |
| Outros Autores: | Paxson, Dean A. |
| Assunto: | Financial Economics Financial management Financial Options Investment Capital Markets |
| Ano: | 1993 |
| País: | Portugal |
| Tipo de documento: | artigo |
| Tipo de acesso: | acesso aberto |
| Instituição associada: | Universidade de Lisboa |
| Idioma: | inglês |
| Origem: | Repositório da Universidade de Lisboa |
| _version_ | 1868978848390971392 |
|---|---|
| author | Duque, João |
| author2 | Paxson, Dean A. |
| author2_role | author |
| author_facet | Duque, João Paxson, Dean A. |
| author_role | author |
| contributor_name_str_mv | Repositório Científico de Acesso Aberto da ULisboa |
| country_str | PT |
| creators_json_txt | [{\"Person.name\":\"Duque, João\"},{\"Person.name\":\"Paxson, Dean A.\"}] |
| datacite.contributors.contributor.contributorName.fl_str_mv | Repositório Científico de Acesso Aberto da ULisboa |
| datacite.creators.creator.creatorName.fl_str_mv | Duque, João Paxson, Dean A. |
| datacite.date.Accepted.fl_str_mv | 1993-01-01T00:00:00Z |
| datacite.date.available.fl_str_mv | 2015-10-22T14:04:22Z |
| datacite.date.embargoed.fl_str_mv | 2015-10-22T14:04:22Z |
| datacite.rights.fl_str_mv | http://purl.org/coar/access_right/c_abf2 |
| datacite.subjects.subject.fl_str_mv | Financial Economics Financial management Financial Options Investment Capital Markets |
| datacite.titles.title.fl_str_mv | Dynamic hedging of equity call options |
| dc.contributor.none.fl_str_mv | Repositório Científico de Acesso Aberto da ULisboa |
| dc.creator.none.fl_str_mv | Duque, João Paxson, Dean A. |
| dc.date.Accepted.fl_str_mv | 1993-01-01T00:00:00Z |
| dc.date.available.fl_str_mv | 2015-10-22T14:04:22Z |
| dc.date.embargoed.fl_str_mv | 2015-10-22T14:04:22Z |
| dc.format.none.fl_str_mv | application/pdf |
| dc.identifier.none.fl_str_mv | http://hdl.handle.net/10400.5/9832 |
| dc.language.none.fl_str_mv | eng |
| dc.publisher.none.fl_str_mv | Instituto Superior de Economia e Gestão |
| dc.rights.none.fl_str_mv | http://purl.org/coar/access_right/c_abf2 |
| dc.subject.none.fl_str_mv | Financial Economics Financial management Financial Options Investment Capital Markets |
| dc.title.fl_str_mv | Dynamic hedging of equity call options |
| dc.type.none.fl_str_mv | http://purl.org/coar/resource_type/c_6501 |
| description | The theory of option pricing assumes generally that options can be replicated through dynamic hedging in the underlying stock. First, we outline the assumptions behind the popular models, such as regarding the distribution of stock returns, and the probability of the terminal stock value reaching certain levels. Then, we define the common "Greeks" of call options, that is the sensitivity of option values to changes in particular variables. Figures show the sensitivity of those Greeks to stock price levels, and time to expiration. Then, we attempt to show that delta and complex hedges, using options with more than one exercise price, are the "solutions" for simultaneous equations establishing delta and gamma (and eventually vega) neutrality, subject to a budget constraint. Finally, we examine the relative profitability and effectiveness (in terms of variance reduction) of delta hedging strategies for three trade positions (in, at and out-of-the-money). |
| dirty | 0 |
| eu_rights_str_mv | openAccess |
| format | article |
| fulltext.url.fl_str_mv | https://repositorio.ulisboa.pt/bitstreams/924f79c5-413e-44b2-a447-bdd2ba91fc5b/download |
| id | ul_9f8eff9b5bc062eabdabacaeba2f26d2 |
| identifier.url.fl_str_mv | http://hdl.handle.net/10400.5/9832 |
| inst_facet_str | urn:organizationAcronym:ul{{{_:::_}}}Universidade de Lisboa |
| instacron_str | ul |
| institution | Universidade de Lisboa |
| instname_str | Universidade de Lisboa |
| language | eng |
| network_acronym_str | ul |
| network_name_str | Repositório da Universidade de Lisboa |
| oai_identifier_str | oai:repositorio.ulisboa.pt:10400.5/9832 |
| organization_str_mv | urn:organizationAcronym:ul |
| person_str_mv | Duque, João Paxson, Dean A. |
| publishDate | 1993 |
| publisher.none.fl_str_mv | Instituto Superior de Economia e Gestão |
| repo_facet_str | urn:repositoryAcronym:ul{{{_:::_}}}Repositório da Universidade de Lisboa |
| reponame_str | Repositório da Universidade de Lisboa |
| repository_id_str | urn:repositoryAcronym:ul |
| service_str_mv | urn:repositoryAcronym:ul |
| spelling | engInstituto Superior de Economia e GestãoThe theory of option pricing assumes generally that options can be replicated through dynamic hedging in the underlying stock. First, we outline the assumptions behind the popular models, such as regarding the distribution of stock returns, and the probability of the terminal stock value reaching certain levels. Then, we define the common "Greeks" of call options, that is the sensitivity of option values to changes in particular variables. Figures show the sensitivity of those Greeks to stock price levels, and time to expiration. Then, we attempt to show that delta and complex hedges, using options with more than one exercise price, are the "solutions" for simultaneous equations establishing delta and gamma (and eventually vega) neutrality, subject to a budget constraint. Finally, we examine the relative profitability and effectiveness (in terms of variance reduction) of delta hedging strategies for three trade positions (in, at and out-of-the-money).application/pdfpt_PTDynamic hedging of equity call optionsDuque, JoãoPaxson, Dean A.HostingInstitutionOrganizationalRepositório Científico de Acesso Aberto da ULisboae-mailmailto:repositorio@reitoria.ulisboa.ptrepositorio@reitoria.ulisboa.pt2015-10-22T14:04:22Z19931993-01-01T00:00:00ZHandlehttp://hdl.handle.net/10400.5/9832http://purl.org/coar/access_right/c_abf2open accessFinancial EconomicsFinancial managementFinancial OptionsInvestmentCapital Markets6232583 bytesliteraturehttp://purl.org/coar/resource_type/c_6501journal articlehttp://purl.org/coar/access_right/c_abf2application/pdffulltexthttps://repositorio.ulisboa.pt/bitstreams/924f79c5-413e-44b2-a447-bdd2ba91fc5b/downloadEstudos de GestãoI28392Lisboa |
| spellingShingle | Dynamic hedging of equity call options Duque, João Financial Economics Financial management Financial Options Investment Capital Markets |
| status | SINGLETON |
| subject.fl_str_mv | Financial Economics Financial management Financial Options Investment Capital Markets |
| title | Dynamic hedging of equity call options |
| title_full | Dynamic hedging of equity call options |
| title_fullStr | Dynamic hedging of equity call options |
| title_full_unstemmed | Dynamic hedging of equity call options |
| title_short | Dynamic hedging of equity call options |
| title_sort | Dynamic hedging of equity call options |
| topic | Financial Economics Financial management Financial Options Investment Capital Markets |
| topic_facet | Financial Economics Financial management Financial Options Investment Capital Markets |
| url | http://hdl.handle.net/10400.5/9832 |
| visible | 1 |