Dynamic options hedging model under mark-to-market risk

Dongwei Shi, Yanyin Li and Xing Yu

International Journal of Information Technology and Management, 2024, vol. 23, issue 2, 137-155

Abstract: In this article, a model for options hedging under the budget and margin calls restrictions for buying put options and selling call options, respectively, is proposed. The proposed models are then solved by using the innovative interior point approach. This study analyses the effectiveness of Chinese SSE 50ETF options for hedging with and without the addition of margin calls. We find that the hedging approach of net buying put options or net selling call options is less profitable than the hedging strategy of buying call options while simultaneously selling put options. To assess the validity of the study's conclusions, we examine the hedging efficiencies of several approaches when the underlying price has an upward tendency and find that the options hedging suggested in this research is still the best alternative. We advise investors to use call options and put options with lower strike prices for hedging in the sensitivity analysis.

Keywords: options hedging; mark-to-market risk; margin calls; dual interior point algorithm. (search for similar items in EconPapers)
Date: 2024
References: Add references at CitEc
Citations:

Downloads: (external link)
http://www.inderscience.com/link.php?id=137769 (text/html)
Access to full text is restricted to subscribers.

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:ids:ijitma:v:23:y:2024:i:2:p:137-155

Access Statistics for this article

More articles in International Journal of Information Technology and Management from Inderscience Enterprises Ltd
Bibliographic data for series maintained by Sarah Parker ().