Option Pricing and Hedge in Presence of Transaction Costs－With Move-Based Trading Policy
Date Issued
2005
Date
2005
Author(s)
Shen, Hsin-Han
DOI
zh-TW
Abstract
There are two parts in this thesis.
In the first part , we consider the option hedge problem under a ``move-based policy' trading strategy.
Under this trading strategy, the price changing rate of a stock is taken as the control variable.
As long as the price changing rate moves out of a predetermined interval,
hedgers enter the market to trade.
With the assumption that the growth rate of the stock is zero, we propose a hedge strategy.
Our hedge strategy is quite similar to Leland's(1985),
only a different modified volatility is used.
After conducting Monte Carlo simulation results,
we found that hedge errors in Leland's hedge strategy are smaller.
However, there are more stable hedge results and lower option prices in our hedge strategy.
Therefore, option hedgers can choose either method according to their preferences for risks.
In the second part, we propose an algorithm to calculate the hedge error in Boyle and Vorst's(1992) model.
The main merit of our algorithm is that it can solve the path-dependent problem when calculating the total hedge error.
By calculation results, we can have a better understanding about the hedge error's converging pattern
in Boyle and Vorst's model.
Subjects
交易成本
選擇權
避險
評價
Move-Based
Pricing
Transaction Cost
Hedge
Option
Type
thesis
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