Pricing and hedging of quotient options in İstanbul stock exchange

Özsoy, Ahmet Umur
Multi-asset options are derivatives written on more than one underlying asset. As a special case of multi-asset options, quotient options are written on the ratio of two underlying assets. They may be used to replace pair trading. We review the literature on quotient options within the Black-Scholes-Merton framework and pair trading. We study the performance of the delta hedging algorithm given by the BSM framework when it is applied to the quotient options traded in Borsa Istanbul. We also compare the market prices of the same quotient options to the prices suggested by the BSM model.