Since 2014
MODIFICATION OF DELTA FOR CHOOSER OPTIONS
CBU International Conference on Innovation in Science and Education
View Archive Info| Field | Value | |
| Title |
MODIFICATION OF DELTA FOR CHOOSER OPTIONS
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| Creator |
Ďurica, Marek; University of Žilina, Faculty of Operation and Economics of Transport and Communications, Department of Quantitative Methods and Economic Informatics
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| Subject |
Chooser, option, delta, gamma, hedging
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| Description |
Correctly used financial derivatives can help investors increase their expected returns and minimize their exposure to risk. To ensure the specific needs of investors, a large number of different types of non-standard exotic options is used. Chooser option is one of them. It is an option that gives its holder the right to choose at some predetermined future time whether the option will be a standard call or put with predetermined strike price and maturity time. Although the chooser options are more expensive than standard European-style options, in many cases they are a more suitable instrument for investors in hedging their portfolio value. For an effective use of the chooser option as a hedging instrument, it is necessary to check the values of the Greek parameters delta and gamma for the options. Especially, if the value of the parameter gamma is too large, hedging of the portfolio value using only parameter delta is insufficient and brings high transaction costs because the portfolio has to be reviewed relatively often. Therefore, in this article, a modification of delta-hedging as well as using the value of parameter gamma is suggested. Error of the delta modification is analyzed and compared with the error of widely used parameter delta. Typical patterns for the modified hedging parameter variation with various time to choose time for chooser options are also presented in this article.
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| Publisher |
Central Bohemia University, o.p.s.
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| Contributor |
This article was written in response to the project co-funded by the EU called “The quality of education and human resources development as pillars of a knowledge society at the Faculty PEDAS, ITMS 26110230083.”
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| Date |
2015-09-19
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| Type |
info:eu-repo/semantics/article
info:eu-repo/semantics/publishedVersion — |
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| Format |
application/pdf
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| Identifier |
http://ojs.journals.cz/index.php/CBUConference2013/article/view/593
10.12955/cbup.v3.593 |
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| Source |
CBU International Conference Proceedings; Vol 3 (2015): CBU International Conference Proceedings 2015; 123-128
1805-9961 1805-997X |
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| Language |
eng
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| Relation |
http://ojs.journals.cz/index.php/CBUConference2013/article/view/593/547
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| Rights |
Copyright (c) 2015 Marek Ďurica
https://creativecommons.org/licenses/by/3.0/ |
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