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Option Strategies with linear programming

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Author Info
Christos Papahristodoulou (Mälardalen University, School of Business)

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Abstract

In practice, all option strategies are decided in advance, given the investor’s belief of the stock price. In this paper, instead of deciding in advance the most appropriate hedging option strategy, an LP problem is formulated, by considering all significant Greek parameters of the Black-Scholes formula, such as delta, gamma, theta, rho and kappa. The optimal strategy to select will be simply decided by the solution of that model. The LP model is applied to Ericsson’s call and puts options.

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File URL: http://129.3.20.41/eps/fin/papers/0505/0505005.pdf
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Publisher Info
Paper provided by EconWPA in its series Finance with number 0505005.

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Date of creation: 04 May 2005
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Handle: RePEc:wpa:wuwpfi:0505005

Note: Type of Document - pdf. Published in European Journal of Operational research 157 (2004) 246-256
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Web page: http://129.3.20.41

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Related research
Keywords: Finance; option portfolios; Linear programming;

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G - Financial Economics

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  1. Black, Fischer & Scholes, Myron S, 1973. "The Pricing of Options and Corporate Liabilities," Journal of Political Economy, University of Chicago Press, vol. 81(3), pages 637-54, May-June. [Downloadable!] (restricted)
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This page was last updated on 2009-11-17.

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