Option Hedging Based On The Monte-Carlo Simulation

Result code in IS VaVaI
<a href="https://www.isvavai.cz/riv?ss=detail&h=RIV%2F61989100%3A27510%2F03%3A00007473" target="_blank" >RIV/61989100:27510/03:00007473 - isvavai.cz</a>
Result on the web
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DOI - Digital Object Identifier
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Result language
čeština
Original language name
Option Hedging Based On The Monte-Carlo Simulation
Original language description
According to the classical Black-Scholes-Merton partial differential equation it is possible to mimic options pay-off by continuously rebalanced portfolio that consists of risky asset (underlying asset of the option) and risk-less asset (default-free zero-coupon bond). To obtain the right hedge ratio it is usually used first derivation of the option pricing formula according to the underlying asset price. Unfortunately, in the case of more complex options it is almost impossible to obtain an analytic pricing formula. These options can be evaluated by simulation methods (Monte-Carlo). Monte-Carlo simulation provides a simple procedure to price assets numerically, however it does not immediately provide hedge ratio. The task of the paper is to describe some alternative methods to express hedge ratio based on the Monte-Carlo simulation. To compare hedging effect of Monte-Carlo method and analytical method an illustrative example of plain vanilla call option hedge is provide. The standard
Czech name
Option Hedging Based On The Monte-Carlo Simulation
Czech description
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Publication year
2003
Confidentiality
S - Úplné a pravdivé údaje o projektu nepodléhají ochraně podle zvláštních právních předpisů

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