Hedging At-the-money Digital Options Near Maturity

被引：0
作者：
Augusto Blanc-Blocquel
Luis Ortiz-Gracia
Rodolfo Oviedo
机构：
[1] Universitat Politècnica de Catalunya,Department of Statistics and Operations Research
[2] University of Barcelona,Department of Econometrics, Statistics and Applied Economics
[3] Independent Financial Advisor,undefined
来源：
Methodology and Computing in Applied Probability | 2023年 / 25卷
关键词：
Digital option; Short maturity; At-the-money; Hedging; Bull call spread; Black-Scholes; Heston model; CGMY model; G13; G32; C61; C63;
D O I：
暂无
中图分类号：
学科分类号：
摘要：
Hedging at-the-money digital options near maturity, remains a challenge in quantitative finance. In the present work, we carry out a hedging strategy by means of a bull spread. We study the probability of super- and sub-hedge the digital option and minimize the probability of a sub-hedge considering the cost of hedging and illiquidity issues. We perform a wide variety of numerical experiments under different models for the underlying asset dynamics. A calibration to market data is provided and used to get the optimal composition of the bull spread satisfying the cost of hedging restriction.
引用
收藏
相关论文
共 29 条
[1]  
Black F(1973)The pricing of options and corporate liabilities J Polit Econ 81 637-654
[2]  
Scholes M(2002)The fine structure of asset returns: an empirical investigation J Bus 75 305-332
[3]  
Carr P(2006)Pricing options in an extended Black Scholes economy with illiquidity: Theory and empirical evidence Rev Financ Stud 19 493-529
[4]  
Geman H(2006)Static versus dynamic hedges: an empirical comparison for barrier options Rev Deriv Res 9 239-264
[5]  
Madan D(2008)A novel pricing method for European options based on Fourier-cosine series expansions SIAM J Sci Comput 31 826-848
[6]  
Yor M(1999)Exploding hedging errors for digital options Finance Stochast 3 187-201
[7]  
Çetin U(2002)Pure jump Lévy processes for asset price modelling J Bank Finance 26 1297-1316
[8]  
Jarrow R(1993)A closed-form solution for options with stochastic volatility with applications to bond and currency options Rev Financ Stud 6 327-343
[9]  
Protter P(2009)Optimal static-dynamic hedges for exotic options under convex risk measures Stoch Process Their Appl 119 3608-3632
[10]  
Warachka M(2015)Static hedging under maturity mismatch Finance Stochast 19 509-539
123