Gamma Hedging of Crude Oil Asian Options



Rok publikování 2015
Druh Článek ve sborníku
Konference Enterprise and the Competitive Environment
Fakulta / Pracoviště MU

Ekonomicko-správní fakulta

Obor Řízení, správa a administrativa
Klíčová slova Asian option; delta; gamma; theta; hedging; investment decision making
Popis Since Black-Scholes formula was derived, many methods have been suggested for vanilla as well as exotic options pricing. More of investing and hedging strategies have been developed based on these pricing models. Goal of this paper is to derive gamma hedging strategy for Asian options and compere its efficiency with gamma hedging combined with predictive model. Fixed strike Asian options are type of exotic options, whose special feature is that payoff is calculated from the difference of average market price and strike price for call options and vice versa for the put options. Methods of stochastic analysis are used to determine deltas and gammas of Asian options. Asian options are cheaper than vanilla options and therefore they are more suitable for portfolio creation. On the other hand their deltas are also smaller as well as profits. That means that they are also less risky and more suitable for hedging. Results, conducted on chosen commodity, confirm better feasibility of Asian options compering with vanilla options in sense of gamma hedging.
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