Reduction of the mean hedging transaction costs

Abstract

Transaction costs of derivative hedging appear in financial markets. This paper considers the problem of delta hedging and the reduction of expected proportional transaction costs. In the literature the expected approximate proportional transaction costs are customarily estimated by the gamma term, usually the largest term of the associated series expansion. However, when options are to expire in a month or few weeks, other terms may become even larger so that more precise estimates are needed. In this paper, different higher-order estimates of proportional transaction costs are analyzed. The problem of the reduction of expected transaction costs is considered. As a result, a suitably adjusted delta is given, for which the expected approximate proportional transaction costs can be reduced. The order of the mean and the variance of the hedging error can be preserved. Several examples are provided.

Keywords

derivatives;delta hedging;transaction costs;hedging error;

Data

Language:	English
Year of publishing:	2015
Typology:	1.01 - Original Scientific Article
Organization:	UM EPF - Faculty of Economics and Business
UDC:	336.76:330.43
COBISS:	12124700
ISSN:	0547-3101
Parent publication:	Naše gospodarstvo
Views:	692
Downloads:	131
Average score:	0 (0 votes)
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Other data

Secondary language:	Slovenian
Secondary title:	Redukcija povprečnih transakcijskih stroškov hedging tehnike
Secondary abstract:	Na finančnih trgih se pri uporabi hedging tehnike pojavijo transakcijski stroški. V tem članku se obravnava problem uporabe delta hedging tehnike ter redukcije proporcionalnih transakcijskih stroškov. V literaturi navedene metode običajno temeljijo le na uporabi tako imenovanega faktorja gama, ki ponavadi predstavlja največji člen v aproksimacijski vrsti. Toda pri opcijah s kratkim časom dospetja, mesec ali nekaj tednov, lahko drugi členi vrste postanejo celo večji. Tedaj so potrebne natančnejše aproksimacije. V tem članku so analizirane aproksimacije višjega reda in njihova uporaba pri zmanjšanju povprečnih proporcionalnih transakcijskih stroškov. Na podlagi analize je podan ustrezno prilagojen faktor delta, s katerim se povprečni aproksimativni proporcionalni transakcijski stroški lahko zmanjšajo. Pripadajoča napaka hedging tehnike se pri tem ne poveča. Za ilustracijo metode je dodanih nekaj primerov.
Secondary keywords:	finančni instrumenti;hedging;transakcije;stroški;
URN:	URN:NBN:SI
Type (COBISS):	Scientific work
Pages:	str. 23-31
Volume:	ǂLetn. ǂ61
Issue:	ǂšt. ǂ5
Chronology:	2015
DOI:	10.1515/ngoe-2015-0019
ID:	9599398