This paper provides a new approach for pricing and hedging popular highly pathdependent equity-linked contracts. We illustrate our technique with two examples: the locally-capped contracts (a popular design on the exchange-listed retail investment contracts on the American Stock Exchange) and the Cliquet option (extensively sold by insurance companies). Wilmott [17] describes these types of con...

Some years ago, a different characterization of the value of a Bermudan option was discovered which can be thought of as the viewpoint of the seller of the option, in contrast to the conventional characterization which took the viewpoint of the buyer. Since then, there has been a lot of interest in finding numerical methods which exploit this dual characterization. This paper presents a pure du...

this study set out to investigate the similarities and differences in frequency of incidence and type of hedging devices used in research articles written by iranian and non-iranian writers. for the purposes of the study, a corpus including 40 agriculture articles in english (20 written by iranian and 20 by non-iranian writers) were selected. collection and classification of the hedging devices...

To deal with severe drought when water supply is insufficient hedging rule, based on hedging rule curve, is proposed. In general, in discrete hedging rules, the rationing factors have changed from a zone to another zone at once. Accordingly, this paper is an attempt to improve the conventional hedging rule to control the changes of rationing factors. In this regard, the simulation model has emp...

In recent studies the truncated Levy process (TLP) has been shown to be very promising for the modeling of financial dynamics. In contrast to the Levy process, the TLP has finite moments and can account for both the previously observed excess kurtosis at short timescales, along with the slow convergence to Gaussian at longer timescales. In this paper I further test the truncated Levy paradigm u...

The pricing and hedging of a general class of options (including American, Bermudan and European options) on multiple assets are studied in the context of currency markets where trading in all assets is subject to proportional transaction costs, and where the existence of a risk-free numéraire is not assumed. Probabilistic dual representations are obtained for the bid and ask prices of such opt...

A claim of Leland (1985) states that in the presence of transaction costs a call option on a stock S, described by geometric Brownian motion, can be perfectly hedged using Black-Scholes delta hedging with a modi ed volatility. Recently Kabanov and Safarian (1997) disproved this claim, giving an explicit (up to an integral) expression of the limiting hedging error, which appears to be strictly n...

For all cases I present both simulations the risk-neutral and the real one. Risk-neutral simulations are used for derivatives pricing, whereas real simulations are used in other applications like: (a) value at risk; (b) hedging; and, (c) in some real options applications, e.g., to find out the option exercise probability and the waiting expected time before the option exercise (see the Timing s...

We examine the pricing and hedging performance of interest rate option pricing models using daily data on US dollar cap and floor prices across both strike rates and maturities. Our results show that fitting the skew of the underlying interest rate probability distribution provides accurate pricing results within a one-factor framework. However, for hedging performance, introducing a second sto...

In this paper we analyse the mean-variance hedging approach in an incomplete market under the assumption of additional market information, which is represented by a given, finite set of observed prices of non-attainable contingent claims. Due to no-arbitrage arguments, our set of investment opportunities increases and the set of possible equivalent martingale measures shrinks. Therefore, we obt...