An Introduction to Equity Derivatives by Sebastien Bossu & Philippe Henrotte

Author:Sebastien Bossu & Philippe Henrotte [Bossu, Sebastien & Henrotte, Philippe]
Language: eng
Format: epub
ISBN: 9781119969037
Published: 2012-03-19T16:00:00+00:00

Draw the graph of the evolution of each quantity over time for two simulations and comment on your results.

Problem 6: Delta-hedging simulation

Using your spreadsheet from Problem 5, implement a daily delta-hedging strategy on a short 10,000 calls position with strike 100 and 1-year maturity. Compute on each day:

Your portfolio value at the beginning of the day;

The quantity of underlying you need to buy or sell;

Your portfolio value at the end of the day;

Your daily P&L (change in portfolio value and overnight financing charge or gain at 5% interest rate p.a. on the portfolio value);

Your daily P&L proxy using Equation (8-2) p.89;

Your cumulative P&L.

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