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EconoQuantum
versão On-line ISSN 2007-9869versão impressa ISSN 1870-6622
Resumo
OLMOS, Andrés e MURIEL, Nelson. Accurate delta hedging of european options using conformable calculus. EconoQuantum [online]. 2024, vol.21, n.1, pp.59-69. Epub 17-Maio-2024. ISSN 2007-9869. https://doi.org/10.18381/eq.v21i1.7324.
Objective:
we aim to develop a method for delta hedging portfolios of European options based on the theory of conformable calculus which improves accuracy of risk management of listed options in a first-order approximation.
Methodology:
we allow the time derivative in the classic Black-Scholes-Merton model to have a fractional order and calculate the corresponding delta of a portfolio of listed options as a function of this conformable parameter.
Results:
applying this method to a portfolio consisting of eight European options on the SPX index, we find that conformable delta hedging offers more accurate average predictions than classical delta hedging.
Limitations:
this method is applicable for delta hedging in European options only.
Originality:
this is the first successful application of conformable calculus to delta hedging in European options.
Conclusions:
application of Conformable Calculus allows for a greater flexibility in the local approximation to price in delta-hedging European options and offers a new and more precise methodology to this objective.
Palavras-chave : option pricing; delta hedging; conformable calculus; risk management; G12; G17; G19.