| Summary: | 碩士 === 銘傳大學 === 財務金融學系 === 86 === The purpose of this study is to compare the hedging performance of delta - neutral hedging strategy and minimax hedging strategy of Taiwan warrants market.The sample of the study was drawn from the derivative warrants issued on Taiwanese stocks, including 11 warrants on single stock. The data employed in this study consisted of daily closing price observations during September 4,1997 through March 16,1998. Minimax differs from delta hedging in that it allows the hedger to incorporate information or his belied about the future level of price. When using the minimax strategy, the hedger specifies a worst case scenario in terms of the price of underlying stock. The minimax strategy recommedns the number of shares in the underlying stock the hedger should hold in order to minimize the hedging error against the worst case occurring. Of the determinants in the call option pricing formulas, all but the expected vloatility of stock retrun are known. This study adopts historical standard deviation and implied standard deviation to estimate volatility. The results show that 1.Minimax hedging strategy is not necessary better than delta hedging strategy, hedging performance depends on the volatility estimated method. 2.When using historical method for volatility estimate, minimax hedging strategy is better than delta hedging strategy on these warrants which are in the money, and has a positive relationship with the degree of in the money. 3.When using implied standard deviation for volatility estimate, minimax hedging strategy outperforms delta hedging strategy for hedging the risk of warrants. The result also show that warrants in Taiwan be overpriced commonly, and the implied volatility could provide more information than historical vloatility. 4.After cross comparison, minimax hedging strategy(ISD) is the best one among four kinds of derivative hedging strategies. A writer of a call warrnat incurs a potential liability in the case of exercising by the buyer, he holds appropriately underlying stocks for avoiding risk of exercise.Minimax is a better strategy for the writer of call warrant for hedging the risk of in-the-money warrant, especially the writer is being under exercise risk.
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