Hedging with Black and scholes Analytical Finance I Ellen Bjarnadóttir, Helga Daníelsdóttir and Koorosh Feizi.

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Presentation transcript:

Hedging with Black and scholes Analytical Finance I Ellen Bjarnadóttir, Helga Daníelsdóttir and Koorosh Feizi

Introduction Our assignment Tools used to solve the problem Monta Carlo simulation Geometric Brownian motion (GBM) Black-Scholes model Delta hedge

Monte Carlo simulation Model that gives you possible result using random variables Calculating probabilty of random outcomes

Black and Scholes

Geometric Brownian Motion

Delta Hedge Changes in option price with respect to underlying stock price Reduces risk

Methodology Specify a model GBM Black & Scholes Parameters S, K, r, σ, T Generate random trials Process the output/results Stock Price Call Price – 15,07 Portfolio Value Rebalance – 9 times

Stock Price at maturity

Conclusion Summary Interpretation of our result Improvements

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