Dynamic Hedging Errors and Investment Banking Profits
(2024) NEKN01 20241Department of Economics
- Abstract
- This article classifies the option hedging strategies of investment banks, explains why dynamic hedges produce hedge errors in imperfect markets, and studies the magnitude and direction of hedge errors produced by different types of options under different hedging strategies. With the help of deep learning models, we predict prices in the next day and actively hedge, overcoming the losses caused by negative hedge errors to investment banks. This research can help increase investment bank profits, lower option premiums, and improve financial market liquidity.
Please use this url to cite or link to this publication:
http://lup.lub.lu.se/student-papers/record/9166739
- author
- Zou, Shibo LU
- supervisor
- organization
- course
- NEKN01 20241
- year
- 2024
- type
- H1 - Master's Degree (One Year)
- subject
- keywords
- Delta Hedge, S&P 500, LSTM, BP Model, Hedge Errors
- language
- English
- id
- 9166739
- date added to LUP
- 2024-10-01 13:10:27
- date last changed
- 2024-10-01 13:10:27
@misc{9166739, abstract = {{This article classifies the option hedging strategies of investment banks, explains why dynamic hedges produce hedge errors in imperfect markets, and studies the magnitude and direction of hedge errors produced by different types of options under different hedging strategies. With the help of deep learning models, we predict prices in the next day and actively hedge, overcoming the losses caused by negative hedge errors to investment banks. This research can help increase investment bank profits, lower option premiums, and improve financial market liquidity.}}, author = {{Zou, Shibo}}, language = {{eng}}, note = {{Student Paper}}, title = {{Dynamic Hedging Errors and Investment Banking Profits}}, year = {{2024}}, }