Show simple item record

dc.contributor.authorXiao, Wenjie
dc.date.accessioned2010-12-23 16:36:56 (GMT)
dc.date.available2010-12-23 16:36:56 (GMT)
dc.date.issued2010-12-23T16:36:56Z
dc.date.submitted2010-12-09
dc.identifier.urihttp://hdl.handle.net/10012/5693
dc.description.abstractGeometric Brownian Motion (GBM) and has been widely used in the Black Scholes option-pricing framework to model the return of assets. However, many empirical investigations show that market returns have higher peaks and fatter tails than GBM. Contrary to the Black Scholes model, an option-pricing model which contains jumps reflects the evolution of stock prices more accurately. Therefore, hedging a model under jump diffusion would be desirable. This thesis develops a simplified method for hedging jump diffusions. In order to hedge the jump risk, other instruments besides the underlying asset must be used in the hedging procedure. We start with a the Partial Integro Differential Equation (PIDE) that models contingent claims with jumps and consider a dynamic hedging strategy that uses a hedging portfolio with the underlying asset and liquidly traded options. We introduce a simple hedging method, where, at each rebalance time, we minimize the instantaneous jump risk by finding proper weights for the underlying asset and instruments. We use a simulation method to test our approach using a Truncated SVD method to solve the linear system of equations resulting from our minimization procedure. Our results indicate that the proposed dynamic hedging strategy provides sufficient protection against diffusion and jump risk. The method also provides a firm theoretical basis for a method which is used in practice.en
dc.language.isoenen
dc.publisherUniversity of Waterlooen
dc.subjectcomputer scienceen
dc.subjecthedgingen
dc.titleA Simplified Method for Hedging Jump Diffusionsen
dc.typeMaster Thesisen
dc.pendingfalseen
dc.subject.programComputer Scienceen
uws-etd.degree.departmentSchool of Computer Scienceen
uws-etd.degreeMaster of Mathematicsen
uws.typeOfResourceTexten
uws.peerReviewStatusUnrevieweden
uws.scholarLevelGraduateen


Files in this item

Thumbnail

This item appears in the following Collection(s)

Show simple item record


UWSpace

University of Waterloo Library
200 University Avenue West
Waterloo, Ontario, Canada N2L 3G1
519 888 4883

All items in UWSpace are protected by copyright, with all rights reserved.

DSpace software

Service outages