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Dynamic Hedging Errors and Investment Banking Profits

Zou, Shibo LU (2024) NEKN01 20241
Department 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.
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author
Zou, Shibo LU
supervisor
organization
course
NEKN01 20241
year
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}},
}