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

  • Pankaj Sinha
  • Archit Johar

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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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. Papahristodoulou, Christos, 2004. "Option strategies with linear programming," European Journal of Operational Research, Elsevier, vol. 157(1), pages 246-256, August.
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