Pricing and hedging gap risk

Peter Tankov

Journal of Computational Finance

Abstract: ABSTRACT We analyze a new class of exotic equity derivatives called gap options or gap risk swaps. These products are designed by major banks to sell off the risk of rapid downside moves, called gaps, in the price of the underlying. We show that to price and manage gap options, jumps must necessarily be included into the model, and present explicit pricing and hedging formulas in the single-asset case as well as pricing formulas for the multi-asset case. The effect of stochastic volatility is also analyzed. ;

References: Add references at CitEc
Citations:

Downloads: (external link)
https://www.risk.net/journal-computational-finance ... and-hedging-gap-risk (text/html)

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:rsk:journ0:2160359

Access Statistics for this article

More articles in Journal of Computational Finance from Journal of Computational Finance
Bibliographic data for series maintained by Thomas Paine ().