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Comparison of Hedging Option Positions of the GARCH(1,1) and the Black-Scholes Models

This article examines the hedging positions derived from the Black-Scholes(B-S) model
and the GARCH(1,1) models, respectively, when the log returns of underlying asset exhibits
GARCH(1,1) process.
The result shows that Black-Scholes and GARCH options deltas, one of the hedging
parameters, are similar for near-the-money options, and Black-Scholes options delta is
higher then GARCH delta in absolute terms when the options are deep out-of-money, and
Black-Scholes options delta is lower then GARCH delta in absolute terms when the options
are deep in-the-money.
Simulation study of hedging procedure of GARCH(1,1) and B-S models are performed,
which also support the above findings.

Identiferoai:union.ndltd.org:NSYSU/oai:NSYSU:etd-0630103-230213
Date30 June 2003
CreatorsHsing, Shih-Pei
ContributorsMong-Na Lo Huang, Chingnun Lee, Mei-Hui Guo
PublisherNSYSU
Source SetsNSYSU Electronic Thesis and Dissertation Archive
LanguageEnglish
Detected LanguageEnglish
Typetext
Formatapplication/pdf
Sourcehttp://etd.lib.nsysu.edu.tw/ETD-db/ETD-search/view_etd?URN=etd-0630103-230213
Rightsunrestricted, Copyright information available at source archive

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