Seminar in applied mathematics and statistics
SPEAKER: Andrea Barletta (Nordea).
TITLE: It only takes a few moments to price and hedge options
ABSTRACT: This talk reviews two papers that exploit a common model-independent methodology to address different problems arising in quantitative finance. The central feature of this methodology is that, under suitable regularity conditions, it allows for a closed-form approximation of an option price by a linear combination of risk-neutral moments. In the first paper, we derive new closed-form pricing formulas for VIX options in the jump-diffusion SVJJ model proposed by Duffie et al. [Econometrica, 2000, 68, 1343–1376]. Our method provides fast and accurate price computations, and therefore it represents a valid and possibly more robust alternative to pricing techniques based on Fourier transform inversions. In the second paper, we propose a novel method for hedging European options, relying on an additional model-independent (heuristic) result. Specifically, there exists an explicit approximate functional form linking the risk-neutral moments to the futures price of the underlying asset and the related variance swap contracts. Building on this result, we derive closed-form model-independent formulas for the delta and the vega sensitivities of an option.
Upcoming events (after September 27):
Wednesday, October 2 at 15.15: Bo Christiansen
Wednesday, November 13 at 15.15: Helene Rytgaard
Wednesday, November 27 at 15.15: Jesper Møller
Wednesday, February 19 at 15.15: Budhi Surya