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Hedging under Parameter Uncertainty

Agyeman-Prempeh, Eugene (2013) MASM01 20131
Mathematical Statistics
Abstract (Swedish)
In this thesis, the impact of unknown parameter estimation in the case
of the volatility parameter in the
Black-Scholes model on hedging is investigated.
The objective is to develop a systematic and robust model of hedging to
challenge the conventional delta and
improved mean-variance hedge, and hopefully improve upon risk assessment
values. The proposed algorithms
were tested in situations of uncertainty to prove their accuracy and
robustness. Call option prices were drawn
from the Black-Scholes model and hedged accordingly with the various
routines. Risk measures were then
calculated in the form of the Value at Risk and the Expected Shortfall
to further assess their overall performance.
In reality most hedging is done with... (More)
In this thesis, the impact of unknown parameter estimation in the case
of the volatility parameter in the
Black-Scholes model on hedging is investigated.
The objective is to develop a systematic and robust model of hedging to
challenge the conventional delta and
improved mean-variance hedge, and hopefully improve upon risk assessment
values. The proposed algorithms
were tested in situations of uncertainty to prove their accuracy and
robustness. Call option prices were drawn
from the Black-Scholes model and hedged accordingly with the various
routines. Risk measures were then
calculated in the form of the Value at Risk and the Expected Shortfall
to further assess their overall performance.
In reality most hedging is done with no knowledge of some crucial
parameters, so a scenario is created to somehow
replicate such a condition to further assess the performance of the
routines. A simulated vector of possible values
of the volatility parameter is drawn to further test the algorithms and
aid in our assessment (Less)
Please use this url to cite or link to this publication:
author
Agyeman-Prempeh, Eugene
supervisor
organization
course
MASM01 20131
year
type
H2 - Master's Degree (Two Years)
subject
language
English
id
3427800
date added to LUP
2013-01-30 14:01:15
date last changed
2013-01-30 14:01:15
@misc{3427800,
  abstract     = {In this thesis, the impact of unknown parameter estimation in the case
of the volatility parameter in the
Black-Scholes model on hedging is investigated.
The objective is to develop a systematic and robust model of hedging to
challenge the conventional delta and
improved mean-variance hedge, and hopefully improve upon risk assessment
values. The proposed algorithms
were tested in situations of uncertainty to prove their accuracy and
robustness. Call option prices were drawn
from the Black-Scholes model and hedged accordingly with the various
routines. Risk measures were then
calculated in the form of the Value at Risk and the Expected Shortfall
to further assess their overall performance.
In reality most hedging is done with no knowledge of some crucial
parameters, so a scenario is created to somehow
replicate such a condition to further assess the performance of the
routines. A simulated vector of possible values
of the volatility parameter is drawn to further test the algorithms and
aid in our assessment},
  author       = {Agyeman-Prempeh, Eugene},
  language     = {eng},
  note         = {Student Paper},
  title        = {Hedging under Parameter Uncertainty},
  year         = {2013},
}