Proactive Hedging European Call Option Pricing with Linear Position Strategy
Proactive hedging option is an exotic European stock option designed for hedgers. Such option requires option holders to buy in (or sell out) the underlying asset (stock) and allows them to adjust the holdings of the underlying asset per its price changes within an option period. The proactive hedgi...
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| Format: | Article |
| Language: | English |
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Wiley
2018-01-01
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| Series: | Discrete Dynamics in Nature and Society |
| Online Access: | http://dx.doi.org/10.1155/2018/2087145 |
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| author | Meng Li Xuefeng Wang Fangfang Sun |
| author_facet | Meng Li Xuefeng Wang Fangfang Sun |
| author_sort | Meng Li |
| collection | DOAJ |
| description | Proactive hedging option is an exotic European stock option designed for hedgers. Such option requires option holders to buy in (or sell out) the underlying asset (stock) and allows them to adjust the holdings of the underlying asset per its price changes within an option period. The proactive hedging option is an attractive choice for hedgers because its price is lower than that of classical options and because it completely hedges the risk of exposure for option holders. In this study, the underlying asset price movement is assumed to follow geometric fractional Brownian motion. The pricing formula for proactive hedging call options is derived with a linear position strategy by applying the risk-neutral evaluation principle. We use simulations to confirm that the price of this exotic option is always no more than that of the classical European option under the same parameters. |
| format | Article |
| id | doaj-art-7a770c9bb75c4b829a97d6547ec8a655 |
| institution | Kabale University |
| issn | 1026-0226 1607-887X |
| language | English |
| publishDate | 2018-01-01 |
| publisher | Wiley |
| record_format | Article |
| series | Discrete Dynamics in Nature and Society |
| spelling | doaj-art-7a770c9bb75c4b829a97d6547ec8a6552025-02-03T01:13:09ZengWileyDiscrete Dynamics in Nature and Society1026-02261607-887X2018-01-01201810.1155/2018/20871452087145Proactive Hedging European Call Option Pricing with Linear Position StrategyMeng Li0Xuefeng Wang1Fangfang Sun2School of Management, Harbin Institute of Technology, Harbin 150001, ChinaSchool of Management, Harbin Institute of Technology, Harbin 150001, ChinaSchool of Management, Harbin Institute of Technology, Harbin 150001, ChinaProactive hedging option is an exotic European stock option designed for hedgers. Such option requires option holders to buy in (or sell out) the underlying asset (stock) and allows them to adjust the holdings of the underlying asset per its price changes within an option period. The proactive hedging option is an attractive choice for hedgers because its price is lower than that of classical options and because it completely hedges the risk of exposure for option holders. In this study, the underlying asset price movement is assumed to follow geometric fractional Brownian motion. The pricing formula for proactive hedging call options is derived with a linear position strategy by applying the risk-neutral evaluation principle. We use simulations to confirm that the price of this exotic option is always no more than that of the classical European option under the same parameters.http://dx.doi.org/10.1155/2018/2087145 |
| spellingShingle | Meng Li Xuefeng Wang Fangfang Sun Proactive Hedging European Call Option Pricing with Linear Position Strategy Discrete Dynamics in Nature and Society |
| title | Proactive Hedging European Call Option Pricing with Linear Position Strategy |
| title_full | Proactive Hedging European Call Option Pricing with Linear Position Strategy |
| title_fullStr | Proactive Hedging European Call Option Pricing with Linear Position Strategy |
| title_full_unstemmed | Proactive Hedging European Call Option Pricing with Linear Position Strategy |
| title_short | Proactive Hedging European Call Option Pricing with Linear Position Strategy |
| title_sort | proactive hedging european call option pricing with linear position strategy |
| url | http://dx.doi.org/10.1155/2018/2087145 |
| work_keys_str_mv | AT mengli proactivehedgingeuropeancalloptionpricingwithlinearpositionstrategy AT xuefengwang proactivehedgingeuropeancalloptionpricingwithlinearpositionstrategy AT fangfangsun proactivehedgingeuropeancalloptionpricingwithlinearpositionstrategy |