Influence of Volatility on Hedging Strategies
Influence of Volatility on Hedging Strategies

Author(s): Hana Florianová
Subject(s): Evaluation research, Financial Markets
Published by: Masarykova univerzita nakladatelství
Keywords: warrants; delta-hedging; portfolio; Frankfurt Stock Exchange;
Summary/Abstract: Subjects of financial markets who invest their funds in financial derivatives undergo high risks. The way how to protect from risk portfolio that includes warrants may be delta-hedging and gamma-hedging. The former is immune to the small changes in underlying asset's price and the letter even for greater changes in price. In this paper we try to answer the question what is the small change in price of an underlying asset. For this purpose we construct 50 portfolios which are delta-neutral and observe and compare how their value reacts to the certain levels of volatility of the underlying asset's price.

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