delta_finite_difference: Hedging of the option

In mociepa/ShortfallRiskHedging: Shortfall Risk Hedging for european option

Hedging of the option

Description

The delta_finite_difference function calculate number of asset needed to hedge an option using finite difference.

Usage

delta_finite_difference(option_value, ds, is_continuous = TRUE, discontinuity_points = NA)

Arguments

option_value	numeric matrix, option prices, return from finite_difference_explicit function.
ds	numeric value, asset step size.
is_continuous	logical value, TRUE means that the payoff function is continuous due to the asset price.
discontinuity_points	numeric vector, denoting at which points of asset price the payoff function is discontinuous. Elements of this vector have to be positive.

Value

A numeric matrix, estimated number of asset needed to hedge an option.

Examples

ds <- finding_parameters(100, 0.3, 600, 5)[1]
dt <- finding_parameters(100, 0.3, 600, 5)[2]
option <- finite_difference_explicit(ds, dt, 600, 0, 0.3, 1, call_payoff, 100)
delta_finite_difference(option, ds)
option <- finite_difference_explicit(ds, dt, 600, 0, 0.3, 1, FUN = option_modificate_payoff, const = 120, drift = 0.1, vol = 0.3, p = 1, call_payoff, 100, is_modificate = TRUE)
delta_finite_difference(option, ds)

mociepa/ShortfallRiskHedging documentation built on Sept. 30, 2022, 6:43 p.m.