Hedging & Pricing of Options using least squares through simulation: Application to the Black-Scholes and the Heston Models - Softcover

Chitlangi, Ravindra

Softcover

ISBN 10: 384433341X ISBN 13: 9783844333411

Publisher: LAP LAMBERT Academic Publishing, 2011

Synopsis

The enormous growth of derivatives markets necessitates the pricing and hedging of derivative contracts accurately and efficiently. This work extends the pricing approach introduced by Longstaff and Schwartz to a stochastic volatility model, namely the Heston Model. The method employed is also used to compute the Option Greeks extending the approach of the paper Hedging using simulation: a least squares approach by Tebaldi. A number of options are considered ranging from plain vanilla to exotics such as Power put and Binary (Asset-or-Nothing) put options in the Black-Scholes model. Finally the methodology is applied to the Heston Model wherein a plain vanilla European call is priced and hedged and the plain vanilla American put option is priced. The price as well as Option Greeks are compared against well-known procedures used in the industry today. Researchers as well as academicians concerned with hedging of derivative contracts would find this work useful.

About this title

About the Author

Ravindra Chitlangi is an MBA from IIM Ahmedabad, M.Sc. (International Management) from the University of Bocconi, Milan and a B. Tech (Mechanical) from VJTI, Mumbai. He works in the financial markets division of a leading Indian Private Sector Bank. In his spare time he enjoys playing and programming computer games and reading about astrophysics.

Edition details

• Publisher: LAP LAMBERT Academic Publishing
• Publication date: 2011
• Language: English
• ISBN 10: 384433341X
• ISBN 13: 9783844333411
• Binding: Paperback
• Number of pages: 64