| Autor: |
Taufiq Choudhry, Sharif Mozumder, Michael Dempsey, M. Humayun Kabir |
| Rok vydání: |
2016 |
| Předmět: |
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| Zdroj: |
Economic Modelling. 59:285-296 |
| ISSN: |
0264-9993 |
| DOI: |
10.1016/j.econmod.2016.07.023 |
| Popis: |
As the price of the underlying asset changes over time, delta of the option changes and a gamma hedge is required along with delta hedge to reduce risk. This paper develops an improved framework to compute delta and gamma values with the average of a range of underlying prices rather than at the conventional fixed ‘one point’. We find that models with time-varying volatility price options satisfactorily, and perform remarkably well in combination with the delta and delta-gamma approximations. Significant improvements are achieved for the GARCH model followed by stochastic volatility models. The new approach can ensure significant improvement in modelling option prices leading to better risk-management decision-making. |
| Databáze: |
OpenAIRE |
| Externí odkaz: |
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