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 ID: 595180
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Slide1
Hedging with Black and scholes
Analytical Finance I
Ellen Bjarnadóttir, Helga Daníelsdóttir and Koorosh FeiziSlide2
Introduction
Our assignment
Tools used to solve the problem
Monta Carlo simulation
Geometric Brownian motion (GBM)
Black-Scholes model
Delta hedgeSlide3
Monte Carlo simulation
Model that gives you possible result using random variables
Calculating probabilty of random outcomesSlide4
Black and Scholes
Calculates the option price
Slide5
Geometric Brownian Motion
Calculates the stock price
Slide6
Delta Hedge
Changes in option price with respect to underlying stock price
Reduces risk Slide7
Methodology
Specify a model
GBM
Black & Scholes
Parameters
S, K, r,
σ
, TGenerate random trials Process the output/resultsStock Price - 102Call Price – 15,07Portfolio Value - 62.831 Rebalance – 9 timesSlide8
Stock Price at maturitySlide9
Conclusion
Summary
Interpretation of our result
Improvements