Dynamic options hedging model under mark-to-market risk Online publication date: Fri, 05-Apr-2024
by Dongwei Shi; Yanyin Li; Xing Yu
International Journal of Information Technology and Management (IJITM), Vol. 23, No. 2, 2024
Abstract: In this article, a model for options hedging under the budget and margin calls restrictions for buying put options and selling call options, respectively, is proposed. The proposed models are then solved by using the innovative interior point approach. This study analyses the effectiveness of Chinese SSE 50ETF options for hedging with and without the addition of margin calls. We find that the hedging approach of net buying put options or net selling call options is less profitable than the hedging strategy of buying call options while simultaneously selling put options. To assess the validity of the study's conclusions, we examine the hedging efficiencies of several approaches when the underlying price has an upward tendency and find that the options hedging suggested in this research is still the best alternative. We advise investors to use call options and put options with lower strike prices for hedging in the sensitivity analysis.
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