Hedging At-the-money Digital Options Near Maturity

被引：0
|
作者：
Augusto Blanc-Blocquel
Luis Ortiz-Gracia
Rodolfo Oviedo
机构：
[1] Universitat Politècnica de Catalunya,Department of Statistics and Operations Research
[2] University of Barcelona,Department of Econometrics, Statistics and Applied Economics
[3] Independent Financial Advisor,undefined
来源：
Methodology and Computing in Applied Probability | 2023年 / 25卷
关键词：
Digital option; Short maturity; At-the-money; Hedging; Bull call spread; Black-Scholes; Heston model; CGMY model; G13; G32; C61; C63;
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摘要：
Hedging at-the-money digital options near maturity, remains a challenge in quantitative finance. In the present work, we carry out a hedging strategy by means of a bull spread. We study the probability of super- and sub-hedge the digital option and minimize the probability of a sub-hedge considering the cost of hedging and illiquidity issues. We perform a wide variety of numerical experiments under different models for the underlying asset dynamics. A calibration to market data is provided and used to get the optimal composition of the bull spread satisfying the cost of hedging restriction.
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