Break-Even Volatility

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dc.contributor.advisorTaylor, David
dc.contributor.advisorMahomed, Obeid
dc.contributor.authorMitoulis, Nicolas
dc.date.accessioned2020-02-11T07:44:08Z
dc.date.available2020-02-11T07:44:08Z
dc.date.issued2019
dc.date.updated2020-01-29T09:38:56Z
dc.description.abstractA profit or loss (P&L) of a dynamically hedged option depends on the implied volatility used to price the option and implement the hedges. Break-even volatility is a method of solving for the volatility which yields no profit or loss based on replicating the hedging procedure of an option on a historical share price time series. This dissertation investigates the traditional break-even volatility method on simulated data, how the break-even formula is derived and details the implementation with reference to MATLAB. We extend the methodology to the Heston model by changing the reference model in the hedging process. Resultantly, the need to employ characteristic function pricing methods arises to calculate the Heston model sensitivities. The break-even volatility solution is then found by means of an optimisation of the continuously delta hedged P&L over the Heston model parameters.
dc.identifier.apacitationMitoulis, N. (2019). <i>Break-Even Volatility</i>. (). ,Faculty of Commerce ,African Institute of Financial Markets and Risk Management. Retrieved from http://hdl.handle.net/11427/30980en_ZA
dc.identifier.chicagocitationMitoulis, Nicolas. <i>"Break-Even Volatility."</i> ., ,Faculty of Commerce ,African Institute of Financial Markets and Risk Management, 2019. http://hdl.handle.net/11427/30980en_ZA
dc.identifier.citationMitoulis, N. 2019. Break-Even Volatility.en_ZA
dc.identifier.ris TY - Thesis / Dissertation AU - Mitoulis, Nicolas AB - A profit or loss (P&L) of a dynamically hedged option depends on the implied volatility used to price the option and implement the hedges. Break-even volatility is a method of solving for the volatility which yields no profit or loss based on replicating the hedging procedure of an option on a historical share price time series. This dissertation investigates the traditional break-even volatility method on simulated data, how the break-even formula is derived and details the implementation with reference to MATLAB. We extend the methodology to the Heston model by changing the reference model in the hedging process. Resultantly, the need to employ characteristic function pricing methods arises to calculate the Heston model sensitivities. The break-even volatility solution is then found by means of an optimisation of the continuously delta hedged P&L over the Heston model parameters. DA - 2019 DB - OpenUCT DP - University of Cape Town KW - Mathematical Finance LK - https://open.uct.ac.za PY - 2019 T1 - Break-Even Volatility TI - Break-Even Volatility UR - http://hdl.handle.net/11427/30980 ER - en_ZA
dc.identifier.urihttp://hdl.handle.net/11427/30980
dc.identifier.vancouvercitationMitoulis N. Break-Even Volatility. []. ,Faculty of Commerce ,African Institute of Financial Markets and Risk Management, 2019 [cited yyyy month dd]. Available from: http://hdl.handle.net/11427/30980en_ZA
dc.language.rfc3066eng
dc.publisher.departmentAfrican Institute of Financial Markets and Risk Management
dc.publisher.facultyFaculty of Commerce
dc.subjectMathematical Finance
dc.titleBreak-Even Volatility
dc.typeMaster Thesis
dc.type.qualificationlevelMasters
dc.type.qualificationnameMPhil
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