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Hedging Greeks for a Portfolio of Options Using Linear and Quadratic Programming

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  • Pankaj Sinha
  • Archit Johar

Abstract

The aim of this paper is to develop a hedging methodology for making a portfolio of options delta, vega and gamma neutral by taking positions in other available options, and simultaneously minimizing the net premium to be paid for the hedging. A quadratic programming solution for the problem is formulated, and then it is approximated to a linear programming solution. A prototype for the linear programming solution has been developed in MS Excel using VBA.

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File URL: http://www.ingentaconnect.com/content/ubpl/jpm/2010/00000004/00000001/art00003
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Bibliographic Info

Article provided by University of Buckingham Press in its journal Journal of Prediction Markets.

Volume (Year): 4 (2010)
Issue (Month): 1 (May)
Pages: 17-26

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Handle: RePEc:buc:jpredm:v:4:y:2010:i:1:p:17-26

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  1. Christos Papahristodoulou, 2005. "Option Strategies with linear programming," Finance 0505005, EconWPA.
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Cited by:
  1. Pankaj Sinha & Akshay Gupta & Hemant Mudgal, 2010. "Active Hedging Greeks of an Options Portfolio Integrating Churning and Minimization of Cost of Hedging Using Quadratic & Linear Programing," Journal of Prediction Markets, University of Buckingham Press, vol. 4(2), pages 1-14, September.

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