Hedging & Pricing of Options using least squares through simulation - Chitlangi, Ravindra
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The enormous growth of derivatives markets necessitates the pricing and hedging of derivative contracts accurately and efficiently. This work extends the pricing approach introduced by Longstaff and Schwartz to a stochastic volatility model, namely the Heston Model. The method employed is also used to compute the Option Greeks extending the approach of the paper Hedging using simulation: a least squares approach by Tebaldi. A number of options are considered ranging from plain vanilla to exotics such as Power put and Binary (Asset-or-Nothing) put options in the Black-Scholes model. Finally the…mehr

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Produktbeschreibung
The enormous growth of derivatives markets necessitates the pricing and hedging of derivative contracts accurately and efficiently. This work extends the pricing approach introduced by Longstaff and Schwartz to a stochastic volatility model, namely the Heston Model. The method employed is also used to compute the Option Greeks extending the approach of the paper Hedging using simulation: a least squares approach by Tebaldi. A number of options are considered ranging from plain vanilla to exotics such as Power put and Binary (Asset-or-Nothing) put options in the Black-Scholes model. Finally the methodology is applied to the Heston Model wherein a plain vanilla European call is priced and hedged and the plain vanilla American put option is priced. The price as well as Option Greeks are compared against well-known procedures used in the industry today. Researchers as well as academicians concerned with hedging of derivative contracts would find this work useful.
Autorenporträt
Ravindra Chitlangi is an MBA from IIM Ahmedabad, M.Sc. (International Management) from the University of Bocconi, Milan and a B. Tech (Mechanical) from VJTI, Mumbai. He works in the financial markets division of a leading Indian Private Sector Bank. In his spare time he enjoys playing and programming computer games and reading about astrophysics.