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Dissertation writing help- Performance of robust model-free hedging via Skorokhod embeddings of digital double barrier options
Custom Dissertation Writing Service on robust model-free hedging
We analyze the performance of robust model-free hedging via Skorokhod embeddings of digital double barrier options against that of traditional hedging methods such as delta and vega/ delta hedging. Digital double barrier options are financial derivative contracts which are most commonly traded in the foreign exchange markets and which pay out a fixed amount on the condition that the underlying asset remains within or breaks into a range defined by two distinct barrier levels. We performed the analysis in hypothetical markets, where we examined the influence of a set of market parameters and assumptions, and in two real-life situations, where we considered digital double barrier options written on the EUR/USD and the AUD/USD spot exchange rates. Our findings suggest that, although robust model-free pricing is in general not competitive with respect to traditional pricing methods, robust model-free hedging can substantially outperform traditional methods when applied to forward markets. In spot markets, we find that the strong performance of model-free hedging relative to traditional hedging methods becomes conditional on the level of risk-neutral drift, the maturity of the option, and the volatility of the underlying.
This work is concerned with the SABR-LMM model. This is a term structure model of interest forward rates with stochastic volatility that is a natural extension
Value at risk (VaR) is of central importance in modern financial risk management. Of the various methods that exist to compute the VaR, the most popular are historical simulation, the variance-covariance method and Monte Carlo (MC) simulation.
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The distinct nature of SMEs makes the pricing and structuring of SME CDO products particularly difficult. First of all, SMEs are openly unrated causing information moral and asymmetries hazard complexities within the SME CDO market.
What we find is that there are still links between intrinsic currency values and these seemingly unrelated markets. Against what does one measure the currency values? Can we de ne intrinsic value of a currency?
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In this thesis, a new alternative method is shown, which instead of minimizing the portfolio risk minimizes the option price. This makes the option most competitive on the market. For the option writer, the ratio of return to risk is, by definitio..
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