Proactive Hedging European Call Option Pricing with Linear Position Strategy

Joint Authors

Wang, Xuefeng
Sun, Fangfang
Li, Meng

Source

Discrete Dynamics in Nature and Society

Issue

Vol. 2018, Issue 2018 (31 Dec. 2018), pp.1-13, 13 p.

Publisher

Hindawi Publishing Corporation

Publication Date

2018-09-17

Country of Publication

Egypt

No. of Pages

13

Main Subjects

Mathematics

Abstract EN

Proactive hedging option is an exotic European stock option designed for hedgers.

Such option requires option holders to buy in (or sell out) the underlying asset (stock) and allows them to adjust the holdings of the underlying asset per its price changes within an option period.

The proactive hedging option is an attractive choice for hedgers because its price is lower than that of classical options and because it completely hedges the risk of exposure for option holders.

In this study, the underlying asset price movement is assumed to follow geometric fractional Brownian motion.

The pricing formula for proactive hedging call options is derived with a linear position strategy by applying the risk-neutral evaluation principle.

We use simulations to confirm that the price of this exotic option is always no more than that of the classical European option under the same parameters.

American Psychological Association (APA)

Li, Meng& Wang, Xuefeng& Sun, Fangfang. 2018. Proactive Hedging European Call Option Pricing with Linear Position Strategy. Discrete Dynamics in Nature and Society،Vol. 2018, no. 2018, pp.1-13.
https://search.emarefa.net/detail/BIM-1152340

Modern Language Association (MLA)

Li, Meng…[et al.]. Proactive Hedging European Call Option Pricing with Linear Position Strategy. Discrete Dynamics in Nature and Society No. 2018 (2018), pp.1-13.
https://search.emarefa.net/detail/BIM-1152340

American Medical Association (AMA)

Li, Meng& Wang, Xuefeng& Sun, Fangfang. Proactive Hedging European Call Option Pricing with Linear Position Strategy. Discrete Dynamics in Nature and Society. 2018. Vol. 2018, no. 2018, pp.1-13.
https://search.emarefa.net/detail/BIM-1152340

Data Type

Journal Articles

Language

English

Notes

Includes bibliographical references

Record ID

BIM-1152340