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Hedging Greeks for a portfolio of options using linear and quadratic programming

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  • Sinha, Pankaj
  • Johar, Archit

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://mpra.ub.uni-muenchen.de/20834/
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Bibliographic Info

Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 20834.

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Date of creation: 15 Feb 2010
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Handle: RePEc:pra:mprapa:20834

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Keywords: Hedging; Greeks; portfolio of options;

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  1. Christos Papahristodoulou, 2005. "Option Strategies with linear programming," Finance, EconWPA 0505005, EconWPA.
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Cited by:
  1. Sinha, Pankaj & Gupta, Akshay & Mudgal, Hemant, 2010. "Active Hedging Greeks of an Options Portfolio integrating churning and minimization of cost of hedging using Quadratic & Linear Programing," MPRA Paper 25707, University Library of Munich, Germany.

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