Module net.finmath.lib
Package net.finmath.montecarlo.assetderivativevaluation.products

Class BlackScholesHedgedPortfolio

java.lang.Object
net.finmath.montecarlo.AbstractMonteCarloProduct
net.finmath.montecarlo.assetderivativevaluation.products.AbstractAssetMonteCarloProduct
net.finmath.montecarlo.assetderivativevaluation.products.BlackScholesHedgedPortfolio
All Implemented Interfaces:
Product, AssetMonteCarloProduct, MonteCarloProduct
public class BlackScholesHedgedPortfolio extends AbstractAssetMonteCarloProduct
This class implements a delta and delta-gamma hedged portfolio of an European option (a hedge simulator). The hedge is done under the assumption of a Black Scholes Model (even if the pricing model is a different one). In case of the gamma hedge and the vega hedge, note that we make the assumption that the market trades these option according to Black-Scholes parameters assumed in hedging. While this is a simple model, it is to some extend reasonable, when we assume that the hedge is done by calculating delta from a calibrated model (where the risk free rate and the volatility are "market implied"). That said, this class evaluates the hedge portfolio given that the market implies a given risk free rate and volatility, while the underlying follows a given (possibly different) stochastic process. The getValue-method returns the random variable \( \Pi(t) \) representing the value of the replication portfolio \( \Pi(t) = \phi_0(t) N(t) + \phi_1(t) S(t) + \psi_0(t) C(t) \).
Version:
1.4
Author:
Christian Fries

  • Constructor Details

    • BlackScholesHedgedPortfolio

      public BlackScholesHedgedPortfolio​(double maturity, double strike, double riskFreeRate, double volatility, double hedgeOptionMaturity, double hedgeOptionStrike, BlackScholesHedgedPortfolio.HedgeStrategy hedgeStrategy)
      Construction of a delta-gamma hedge portfolio assuming a Black-Scholes model.
      Parameters:
      maturity - Maturity of the option we wish to replicate.
      strike - Strike of the option we wish to replicate.
      riskFreeRate - Model riskFreeRate assumption for our delta hedge.
      volatility - Model volatility assumption for our delta hedge.
      hedgeOptionMaturity - Maturity of the option used in the hedge portfolio (to hedge gamma).
      hedgeOptionStrike - Strike of the option used in the hedge portfolio (to hedge gamma).
      hedgeStrategy - Specification of the hedge strategy to be used (delta, delta-gamma, etc.).

    • BlackScholesHedgedPortfolio

      public BlackScholesHedgedPortfolio​(double maturity, double strike, double riskFreeRate, double volatility)
      Construction of a hedge portfolio assuming a Black-Scholes model for the hedge ratios.
      Parameters:
      maturity - Maturity of the option we wish to replicate.
      strike - Strike of the option we wish to replicate.
      riskFreeRate - Model riskFreeRate assumption for our delta hedge.
      volatility - Model volatility assumption for our delta hedge.

  • Method Details