Pricing of Proactive Hedging European Option with Dynamic Discrete Position Strategy
Joint Authors
Wang, Xuefeng
Sun, Fangfang
Li, Meng
Source
Discrete Dynamics in Nature and Society
Issue
Vol. 2019, Issue 2019 (31 Dec. 2019), pp.1-11, 11 p.
Publisher
Hindawi Publishing Corporation
Publication Date
2019-04-01
Country of Publication
Egypt
No. of Pages
11
Main Subjects
Abstract EN
Proactive hedging European option is an exotic option for hedgers in the options market proposed recently by Wang et al.
It extends the classical European option by requiring option holders to continuously trade in underlying assets according to a predesigned trading strategy, to proactively hedge part of the potential risk from underlying asset price changes.
To generalize this option design for practical application, in this study, a proactive hedging option with discrete trading strategy is developed and its pricing formula is deducted assuming the underlying asset price follows Geometric Fractional Brownian Motion.
Simulation studies show that proactive hedging option with discrete trading strategy still enjoys strong price advantage compared to the classical European option for majority of parameter space.
The observed price advantage is stronger when the underlying asset has more volatility or when the asset price follows closer to Geometric Brownian Motion.
Additionally, we found that a higher frequency trading strategy has stronger price advantage if there is no trading cost.
The findings in this research strongly facilitate the practical application of the proactive hedging option, making this lower-cost trading tool more feasible.
American Psychological Association (APA)
Li, Meng& Wang, Xuefeng& Sun, Fangfang. 2019. Pricing of Proactive Hedging European Option with Dynamic Discrete Position Strategy. Discrete Dynamics in Nature and Society،Vol. 2019, no. 2019, pp.1-11.
https://search.emarefa.net/detail/BIM-1146200
Modern Language Association (MLA)
Li, Meng…[et al.]. Pricing of Proactive Hedging European Option with Dynamic Discrete Position Strategy. Discrete Dynamics in Nature and Society No. 2019 (2019), pp.1-11.
https://search.emarefa.net/detail/BIM-1146200
American Medical Association (AMA)
Li, Meng& Wang, Xuefeng& Sun, Fangfang. Pricing of Proactive Hedging European Option with Dynamic Discrete Position Strategy. Discrete Dynamics in Nature and Society. 2019. Vol. 2019, no. 2019, pp.1-11.
https://search.emarefa.net/detail/BIM-1146200
Data Type
Journal Articles
Language
English
Notes
Includes bibliographical references
Record ID
BIM-1146200