Hedging Greeks for a portfolio of options using linear and quadratic programming
AbstractThe 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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Bibliographic InfoPaper provided by University Library of Munich, Germany in its series MPRA Paper with number 20834.
Date of creation: 15 Feb 2010
Date of revision:
Hedging; Greeks; portfolio of options;
Other versions of this item:
- Pankaj Sinha & Archit Johar, 2010. "Hedging Greeks for a Portfolio of Options Using Linear and Quadratic Programming," Journal of Prediction Markets, University of Buckingham Press, vol. 4(1), pages 17-26, May.
- G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
- C00 - Mathematical and Quantitative Methods - - General - - - General
- C63 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Computational Techniques
- C88 - Mathematical and Quantitative Methods - - Data Collection and Data Estimation Methodology; Computer Programs - - - Other Computer Software
- G00 - Financial Economics - - General - - - General
- C10 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - General
- C44 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: Special Topics - - - Operations Research; Statistical Decision Theory
- C02 - Mathematical and Quantitative Methods - - General - - - Mathematical Economics
- C61 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Optimization Techniques; Programming Models; Dynamic Analysis
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- Christos Papahristodoulou, 2005.
"Option Strategies with linear programming,"
- 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,"
25707, University Library of Munich, Germany.
- 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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