This paper presents an empirical test of Dupire's (1993) option price inversion approach using FT–SE 100 index options. The performance of option deltas determined using the Dupire approach is compared to the performance of a pair of Black-Scholes (1973) based deltas. The study finds that Black-Scholes based deltas out-perform the Dupire-deltas, which is consistent with the results in synthesiz...

A survey on derivative usage and financial risk management in New Zealand shows that the currency forward is the most frequently used derivatives in hedging transaction exposure. This paper examines whether forwards performs better than over-the-counter option for a New Zealand exporter in hedging NZD/USD transaction exposure. This research adopts H sin, Kuo and Lee’s (1994) model of hedging ef...

This thesis applies a Partial Integral Differential Equation model, along with a Monte Carlo approach to quantitatively analyze the no arbitrage value of hedge fund performance fees. From a no-arbitrage point of view, the investor in a hedge fund is providing a free option to the manager of the hedge fund. The no-arbitrage value of this option can be locked in by the hedge fund manager using a ...

An installment option is a European option in which the premium, instead of being paid up-front, is paid in a series of installments. If all installments are paid the holder receives the exercise value, but the holder has the right to terminate payments on any payment date, in which case the option lapses with no further payments on either side. We discuss pricing and risk management for these ...

High-frequency trading and automated algorithm impose high requirements on computational methods. We provide a model-free option pricing approach with neural networks, which can be applied to real-time pricing and hedging of FX options. In contrast to well-known theoretical models, an essential advantage of our approach is the simultaneous pricing across different strike prices and parsimonious...

This paper examines the implications of the production transformation asymmetry on prices of the commodity relative to the prices of its derivative products. When the production transformation process of a harvested good is irreversible, the price linkage between the harvested good and its derivatives breaks. This happens in the case where the supply of the good declines significantly and when ...

Hedging down-and-out puts (and up-and-out calls), where the maximum payoff is reached just before a barrier hit that would render claim worthless afterwards, challenging. All hedging methods potentially lead to large errors when underlying already close and hedge portfolio can only be adjusted in discrete time intervals. In this paper, we analyze situation, especially case of overnight trading ...