Option Strategies with linear programming

Christos Papahristodoulou ()

Finance from EconWPA

Abstract: In practice, all option strategies are decided in advance, given the investor’s belief of the stock price. In this paper, instead of deciding in advance the most appropriate hedging option strategy, an LP problem is formulated, by considering all significant Greek parameters of the Black-Scholes formula, such as delta, gamma, theta, rho and kappa. The optimal strategy to select will be simply decided by the solution of that model. The LP model is applied to Ericsson’s call and puts options.

Keywords: Finance; option portfolios; Linear programming (search for similar items in EconPapers)
JEL-codes: G (search for similar items in EconPapers)
Date: 2005-05-04
Note: Type of Document - pdf. Published in European Journal of Operational research 157 (2004) 246-256
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Journal Article: Option strategies with linear programming (2004)
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Persistent link: http://EconPapers.repec.org/RePEc:wpa:wuwpfi:0505005

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