| Summary: | 碩士 === 淡江大學 === 財務金融學系 === 89 === The basic option valuation model, derived by Black and Scholes(1973), assumes perfect markets. However, this is obviously an unrealistic assumption. The most important effects are those arising from the inclusion of nonzero costs of transaction in the underlying asset ( which in a Black-Scholes world implies potentially unbounded costs), and the consequences of trading only at discrete points in time. In this case it is not possible to be perfectly hedged continuously and hence completely eliminate all risk associated with a portfolio.
In this paper, we take the stock price patterns into account. The purpose of this paper is to test some hedging strategies to find out the better strategy under each stock price pattern by simulation. We take transaction cost and interest cost account, and we trade at discrete points in time.
We discuss three types hedging strategies of warrants:
(1)Hedging Period Adjusted Method
(2)Hedging Boundary Method
(3)Stock Price Moving Average with Hedging Period Adjusted Method
We find that 「Everyday Delta Hedge」is the better hedging strategy, which hedging cost is the least excluding transaction costs. If we take transaction costs and interest cost into account, we explore that 「Stock Price Moving Average with Hedging Period Adjusted Method」is the better hedging strategy. Besides, 「Everyday Delta Hedge」and 「Stock Price Moving Average with Hedging Period Adjusted Method」are good at the smooth stock price pattern, and the hedging effect of 「Hedging Boundary Method」is better in the rough stock price pattern.
In advance, the paper also find that the hedging cost will increasing with the fluctuation of stock price, and this result makes sense. Although all above are the result of simulation, we are sure this paper do provide valuable conclusion for the hedge of warrants.
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