Static hedging strategies for barrier options and their robustness to model risk

Download

index.pdf

Date

2007

Author

Kaya, Orçun

Metadata

Show full item record

Item Usage Stats

272
views

327
downloads

With the rapid increase in the usage of barrier options on the OTC markets, pricing and especially hedging of these exotic instruments became an important field of research. This paper aims to explain, apply and compare current methods used for pricing and hedging barrier options with a simulation approach. An overview of most popular methods for pricing and hedging is presented in the first part, followed by application of these pricing methods and comparing the performances of different dynamic and static hedging techniques in Black-Scholes environment by simulation in the second part. In the third part different models such as ARCH type and Stochastic Volatility are used with different jump terms to relax the assumptions of the Black-Scholes and examine the effects of these incomplete models on both pricing and performance of different hedging techniques. In the fourth part diffusion models such as Constant Variance Elasticity, Heston Stochastic Volatility and Merton Jump Diffusion are used to complete the picture.

Subject Keywords

Finance.

URI

http://etd.lib.metu.edu.tr/upload/2/12608763/index.pdf
https://hdl.handle.net/11511/16786

Collections

Graduate School of Applied Mathematics, Thesis

Suggestions

OpenMETU
Core

The volatility spillover among a country’s foreign exchange, bond, and stock markets: a multivariate garch analysis Kubilay, Mustafa Murat; Danışoğlu, Seza; Department of Financial Mathematics (2012) The purpose of this study is to examine the volatility spillover among a country’s foreign exchange, bond and stock markets and the volatility transmission from the global bond, stock and commodity markets to these local financial markets. The sample for the study includes data from both emerging and developed economies in the time period between 2004 and 2011. A multivariate GARCH methodology with the BEKK representation is applied for the local financial markets and global variables are included as exogen...
Dynamic complex hedging and portfolio optimization in additive markets Polat, Onur; Hayfavi, Azize; Department of Financial Mathematics (2009) In this study, the geometric Additive market models are considered. In general, these market models are incomplete, that means: the perfect replication of derivatives, in the usual sense, is not possible. In this study, it is shown that the market can be completed by new artificial assets which are called “power-jump assets” based on the power-jump processes of the underlying Additive process. Then, the hedging portfolio for claims whose payoff function depends on the prices of the stock and the power-jump ...
Modeling co-movements among financial markets: applications of multivariate autoregressive conditional heteroscedasticity with smooth transitions in conditional correlations Öztek, Mehmet Fatih; Öcal, Nadir; Department of Economics (2013) The main purpose of this thesis is to assess the potential of emerging stock markets and commodity markets in attracting the attention of international investors who utilize various portfolio diversification strategies to reduce the cumulative risk of their portfolio. A successful portfolio diversification strategy requires low correlation among financial markets. However, it is now well documented that the correlations among financial markets in developed countries are very high and hence the benefits of i...
A market model for pricing inflation indexed bonds with jumps incorporation Güney, İbrahim Ethem; Hayfavi, Azize; Department of Financial Mathematics (2008) Protection against inflation is an essential part of the today's financial markets, particularly in high-inflation economies. Hence, nowadays inflation indexed instruments are being increasingly popular in the world financial markets. In this thesis, we focus on pricing of the inflation-indexed bonds which are the unique inflation-indexed instruments traded in the Turkish bond market. Firstly, we review the Jarrow-Yildirim model which deals with pricing of the inflation-indexed instruments within the HJM fr...
Comparative study of risk measures Ekşi, Zehra; Körezlioğlu, Hayri; Department of Financial Mathematics (2005) There is a little doubt that, for a decade, risk measurement has become one of the most important topics in finance. Indeed, it is natural to observe such a development, since in the last ten years, huge amounts of financial transactions ended with severe losses due to severe convulsions in financial markets. Value at risk, as the most widely used risk measure, fails to quantify the risk of a position accurately in many situations. For this reason a number of consistent risk measures have been introduced in...

Citation Formats

O. Kaya, “Static hedging strategies for barrier options and their robustness to model risk,” M.S. - Master of Science, Middle East Technical University, 2007.