SSRN Author: Alan WhiteAlan White SSRN Content
http://www.ssrn.com/author=296747
http://www.ssrn.com/rss/en-usTue, 19 Sep 2017 02:01:19 GMTeditor@ssrn.com (Editor)Tue, 19 Sep 2017 02:01:19 GMTwebmaster@ssrn.com (WebMaster)SSRN RSS Generator 1.0REVISION: Optimal Delta Hedging for OptionsThe “practitioner Black-Scholes delta” for hedging options is a delta calculated from the Black-Scholes-Merton model (or one of its extensions) with the volatility parameter set equal to the implied volatility. As has been pointed out by a number of researchers, this delta does not minimize the variance of changes in the value of a trader’s position. This is because there is a non-zero correlation between movements in the price of the underlying asset and implied volatility movements. The minimum variance delta takes account of both price changes and the expected change in implied volatility conditional on a price change. This paper determines empirically a model for the minimum variance delta. We test the model using data on options on the S&P 500 and show that it is an improvement over stochastic volatility models, even when the latter are calibrated afresh each day for each option maturity. We present results for options on the S&P 100, the Dow Jones, individual stocks, and ...
http://www.ssrn.com/abstract=2658343
http://www.ssrn.com/1626254.htmlMon, 18 Sep 2017 13:38:47 GMTREVISION: Interest Rate Trees: Extensions and ApplicationsThis paper provides extensions to existing procedures for representing one-factor no-arbitrage models of the short rate in the form of a tree. It allows a wide range of drift functions for the short rate to be used in conjunction with a wide range of volatility assumptions. It shows that, if the market price of risk is a function only of the short rate and time, a single tree with two sets of probabilities on branches can be used to represent rate moves in both the real-world and risk-neutral world. Examples are given to illustrate how the extensions can provide modeling flexibility when interest rates are negative.
http://www.ssrn.com/abstract=2928975
http://www.ssrn.com/1626252.htmlMon, 18 Sep 2017 13:27:06 GMTREVISION: Valuing Derivatives: Funding Value Adjustments and Fair ValueThe authors examine whether a bank should make a funding value adjustment (FVA) when valuing derivatives. They conclude that an FVA is justifiable only for the part of a company’s credit spread that does not reflect default risk. They show that an FVA can lead to conflicts between traders and accountants. The types of transactions a bank enters into with end users will depend on how high its funding costs are. Furthermore, an FVA can give rise to arbitrage opportunities for end users.
http://www.ssrn.com/abstract=2245821
http://www.ssrn.com/1623643.htmlThu, 07 Sep 2017 12:30:57 GMTREVISION: Optimal Delta Hedging for OptionsThe “practitioner Black-Scholes delta” for hedging options is a delta calculated from the Black-Scholes-Merton model (or one of its extensions) with the volatility parameter set equal to the implied volatility. As has been pointed out by a number of researchers, this delta does not minimize the variance of changes in the value of a trader’s position. This is because there is a non-zero correlation between movements in the price of the underlying asset and implied volatility movements. The minimum variance delta takes account of both price changes and the expected change in implied volatility conditional on a price change. This paper determines empirically a model for the minimum variance delta. We test the model using data on options on the S&P 500 and show that it is an improvement over stochastic volatility models, even when the latter are calibrated afresh each day for each option maturity. We present results for options on the S&P 100, the Dow Jones, individual stocks, and ...
http://www.ssrn.com/abstract=2658343
http://www.ssrn.com/1594149.htmlThu, 25 May 2017 12:18:18 GMTREVISION: Optimal Delta Hedging for OptionsThe “practitioner Black-Scholes delta” for hedging options is a delta calculated from the Black-Scholes-Merton model (or one of its extensions) with the volatility parameter set equal to the implied volatility. As has been pointed out by a number of researchers, this delta does not minimize the variance of changes in the value of a trader’s position. This is because there is a non-zero correlation between movements in the price of the underlying asset and implied volatility movements. The minimum variance delta takes account of both price changes and the expected change in implied volatility conditional on a price change. This paper determines empirically a model for the minimum variance delta. We test the model using data on options on the S&P 500 and show that it is an improvement over stochastic volatility models, even when the latter are calibrated afresh each day for each option maturity. We present results for options on the S&P 100, the Dow Jones, individual stocks, and ...
http://www.ssrn.com/abstract=2658343
http://www.ssrn.com/1591411.htmlTue, 16 May 2017 10:45:17 GMTREVISION: A Generalized Procedure for Building Trees for the Short Rate and Its Application to Determining Market Implied Volatility FunctionsOne-factor no-arbitrage models of the short rate are important tools for valuing interest rate derivatives. Trees are often used to implement the models and fit them to the initial term structure. This paper generalizes existing tree building procedures so that a very wide range of interest rate models can be accommodated. It shows how a piecewise linear volatility function can be calibrated to market data and, using market data from days during the period 2004 to 2013, finds that the best fit to cap prices is provided by a function remarkably similar to that estimated by Deguillaume et al (2013) from historical data.
http://www.ssrn.com/abstract=2399615
http://www.ssrn.com/1581293.htmlSun, 09 Apr 2017 06:54:49 GMTREVISION: Interest Rate Trees: Extensions and ApplicationsThis paper provides extensions to existing procedures for representing one-factor no-arbitrage models of the short rate in the form of a tree. It allows a wide range of drift functions for the short rate to be used in conjunction with a wide range of volatility assumptions. It shows how a single tree with two sets of branching probabilities can be used to represent rate moves in both the real-world and risk-neutral world. Examples are given to illustrate how the extensions can provide modeling flexibility when interest rates are negative.
http://www.ssrn.com/abstract=2928975
http://www.ssrn.com/1572518.htmlThu, 09 Mar 2017 08:12:41 GMTREVISION: Optimal Delta Hedging for OptionsThe “practitioner Black-Scholes delta” for hedging options is a delta calculated from the Black-Scholes-Merton model (or one of its extensions) with the volatility parameter set equal to the implied volatility. As has been pointed out by a number of researchers, this delta does not minimize the variance of changes in the value of a trader’s position. This is because there is a non-zero correlation between movements in the price of the underlying asset and implied volatility movements. The minimum variance delta takes account of both price changes and the expected change in implied volatility conditional on a price change. This paper determines empirically a model for the minimum variance delta. We test the model using data on options on the S&P 500 and show that it is an improvement over stochastic volatility models, even when the latter are calibrated afresh each day for each option maturity. We present results for options on the S&P 100, the Dow Jones, individual stocks, and ...
http://www.ssrn.com/abstract=2658343
http://www.ssrn.com/1553736.htmlMon, 26 Dec 2016 06:30:31 GMT