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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.
In this dissertation is on the portfolio selection of a trader subject to a risk limit give in terms of variance or Value-at-Risk (VaR). First, we suppose a Markowitz type portfolio problem founded on a mean-variance analysis.
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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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