Delta-gamma-theta Hedging of Crude Oil Asian Options

Juraj Hruška
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Juraj Hruška: Department of Finance, Faculty of Economics and Administration, Masaryk University, Žerotínovo nám. 617/9, 601 77 Brno, Czech Republic

Acta Universitatis Agriculturae et Silviculturae Mendelianae Brunensis, 2015, vol. 63, issue 6, 1897-1903

Abstract: Since Black-Scholes formula was derived, many methods have been suggested for vanilla as well as exotic options pricing. More of investing and hedging strategies have been developed based on these pricing models. Goal of this paper is to derive delta-gamma-theta hedging strategy for Asian options and compere its efficiency with gamma-delta-theta hedging combined with predictive model. Fixed strike Asian options are type of exotic options, whose special feature is that payoff is calculated from the difference of average market price and strike price for call options and vice versa for the put options. Methods of stochastic analysis are used to determine deltas, gammas and thetas of Asian options. Asian options are cheaper than vanilla options and therefore they are more suitable for precise portfolio creation. On the other hand their deltas are also smaller as well as profits. That means that they are also less risky and more suitable for hedging. Results, conducted on chosen commodity, confirm better feasibility of Asian options compering with vanilla options in sense of gamma hedging.

Keywords: Asian option; delta; gamma; theta; hedging; investment decision making (search for similar items in EconPapers)
Date: 2015
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Persistent link: https://EconPapers.repec.org/RePEc:mup:actaun:actaun_2015063061897

DOI: 10.11118/actaun201563061897

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