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JOURNALS // Trudy Instituta Matematiki i Mekhaniki UrO RAN // Archive

Trudy Inst. Mat. i Mekh. UrO RAN, 2013 Volume 19, Number 2, Pages 179–192 (Mi timm943)

This article is cited in 3 papers

Modernization of the stop-loss start-gain strategy for hedging an option position

A. I. Kibzun, V. R. Sobol'

Moscow Aviation Institute (State University of Aerospace Technologies)

Abstract: Issues of hedging option positions by an American call-option seller are considered. The stop-loss start-gain strategy is modified by introducing a hedging “insensitivity” band. Average losses of a hedger using this method of hedging are calculated. An optimal width of the “insensitivity” band for minimizing the hedger's average losses is chosen.

Keywords: option hedging, stop-loss start-gain strategy, Wiener process, distribution of the number of crossings of a strip, optimal hedging band.

UDC: 519.213

Received: 01.12.2012



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