Application of Volatility Targeting Strategies within a Black-Scholes Framework

• Main Author: Vakaloudis, Dmitri
• Other Authors: Mahomed, Obeid
• Format: Dissertation
• Language: English
• Published: Faculty of Commerce 2020
• Subjects: Mathematical Finance
• Online Access: http://hdl.handle.net/11427/31319

The traditional Black-Scholes (BS) model relies heavily on the assumption that underlying returns are normally distributed. In reality however there is a large amount of evidence to suggest that this assumption is weak and that actual return distributions are non-Gaussian. This dissertation looks at algorithmically generating a Volatility Targeting Strategy (VTS) which can be used as an underlying asset. The rationale here is that since the VTS has a constant prespecified level of volatility, its returns should be normally distributed, thus tending closer to an underlying that adheres to the assumptions of BS.