Pricing and hedging lookback options using black-scholes in Borsa İstanbul

Samuel Paul, Sharoy Augustine
The lookback option is a path dependent option that looks at the behaviour of the underlying asset for a specified time frame known as the lookback period. The maximum (minimum) attained during the lookback period is used to determine the option's payoff. In this thesis, the floating strike lookback option, which uses the maximum to determine the strike price for the put options will be examined and will be applied to the assets appearing in the BIST30 index. We estimate the historical volatility of these assets and compute the price of the floating strike lookback options written on these assets using the Black Scholes (BS) framework. We then apply the delta hedging algorithm given by Black Scholes to see its replication performance for these lookback options. We apply the algorithm in two different periods: October 2015 and January 2016.  


Pricing and hedging of quotient options in İstanbul stock exchange
Özsoy, Ahmet Umur; Sezer, Ali Devin; Ayaydın Hacıömeroğlu, Hande; Department of Financial Mathematics (2016)
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 mark...
On forward interest rate models : via random fields and Markov jump processes
Altay, Sühan; Körezlioğlu, Hayri; Department of Financial Mathematics (2007)
The essence of the interest rate modeling by using Heath-Jarrow-Morton framework is to find the drift condition of the instantaneous forward rate dynamics so that the entire term structure is arbitrage free. In this study, instantaneous forward interest rates are modeled using random fields and Markov Jump processes and the drift conditions of the forward rate dynamics are given. Moreover, the methodology presented in this study is extended to certain financial settings and instruments such as multi-country...
Using ultra high frequency data in integrated variance estimation: gathering evidence on market microstructure noise
Kılıçkaya, İnci; Danışoğlu, Seza; Department of Financial Mathematics (2017)
In recent years, as a result of more readily available ultra high frequency data (UHFD), realized volatility (RV) measures became popular in the finance literature since in theory, sampling at İncreasingly higher frequency should lead to, in the limit, a consistent estimator of integrated return volatility (IV) for Ito-semimartingale asset prices. However, when observed prices are contaminated with an additive market microstructure noise (MMN), an asymptotic bias appears, and, therefore, it becomes necessar...
Pricing and hedging of constant proportion debt obligations
İşcanoğlu Çekiç, Ayşegül; Uğur, Ömür; Korn, Ralf; Department of Financial Mathematics (2011)
A Constant Proportion Debt Obligation is a credit derivative which has been introduced to generate a surplus return over a riskless market return. The surplus payments should be obtained by synthetically investing in a risky asset (such as a credit index) and using a linear leverage strategy which is capped for bounding the risk. In this thesis, we investigate two approaches for investigation of constant proportion debt obligations. First, we search for an optimal leverage strategy which minimises the mean-...
Pricing spread and basket options under markov-modulated models
Kozpınar, Sinem; Uğur, Ömür; Eksi Altay, Zehra; Department of Financial Mathematics (2018)
This thesis first aims to study the evaluation of spread and basket options under the classical Markov-modulated framework, for which a transition in the Markov process leads to a switch in the model parameters. In this regard, we provide approximations to the exact option prices based on ideas from the literature without regime switching. We start with pricing spread options when risky assets follow Markov-modulated geometric Brownian motions (MMGBMs). In this context, we focus on the regime-switching vers...
Citation Formats
S. A. Samuel Paul, “Pricing and hedging lookback options using black-scholes in Borsa İstanbul,” M.S. - Master of Science, Middle East Technical University, 2016.