Abstract
In this article, we elaborate amethod for determining the optimal strike price
for a put option, used to hedge a position in a financial product such as a
basket of shares and a bond. This strike price is optimal in the sense that
it minimizes, for a given budget, a class of risk measures satisfying certain
properties. Formulas are derived for one single underlying as well as for
a weighted sum of underlyings. For the latter we will consider two cases
depending on the dependence structure of the components in this weighted
sum. Applications and numerical results are presented.
for a put option, used to hedge a position in a financial product such as a
basket of shares and a bond. This strike price is optimal in the sense that
it minimizes, for a given budget, a class of risk measures satisfying certain
properties. Formulas are derived for one single underlying as well as for
a weighted sum of underlyings. For the latter we will consider two cases
depending on the dependence structure of the components in this weighted
sum. Applications and numerical results are presented.
| Original language | English |
|---|---|
| Pages (from-to) | 767-800 |
| Number of pages | 34 |
| Journal | Journal of Risk and Insurance |
| Volume | 77 |
| Publication status | Published - 2010 |
Keywords
- optimal strike price