期刊
APPLIED ECONOMICS
卷 54, 期 14, 页码 1625-1638出版社
ROUTLEDGE JOURNALS, TAYLOR & FRANCIS LTD
DOI: 10.1080/00036846.2021.1980490
关键词
Option pricing; mean-variance portfolio; binomial pricing trees; stochastic continuous diffusions; stochastic volatility; volatility-of-volatility; Merton jump diffusions
类别
This paper combines modern portfolio theory and option pricing theory to construct an optimal portfolio for a trader taking a position in a European option contract, underlying assets, and a risk-free bond. The optimal holdings in the underlying assets for the trader's mean-variance portfolio and the amount of unhedged risk prior to maturity are derived under various price dynamics models.
In this paper, we combine modern portfolio theory and option pricing theory so that a trader taking a position in a European option contract, the underlying assets, and a risk-free bond can construct an optimal portfolio while ensuring that the option is perfectly hedged at maturity. We derive both the optimal holdings in the underlying assets for the trader's optimal mean-variance portfolio and the amount of unhedged risk prior to maturity. Solutions assuming the price dynamics in the underlying assets follow a discrete binomial model, and continuous diffusions, stochastic volatility, volatility-of-volatility, and Merton's jump-diffusion model are derived.
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