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- Title
An Empirical Comparison of Option-Pricing Models in Hedging Exotic Options.
- Authors
An, Yunbi; Suo, Wulin
- Abstract
This paper examines the empirical performance of various option-pricing models in hedging exotic options, such as barrier options and compound options. A practical and relevant testing approach is adopted to capture the essence of model risk in option pricing and hedging. Our results indicate that the exotic feature of the option under consideration has a great impact on the relative performance of different option-pricing models. In addition, for any given model, the more “exotic” the option, the poorer the hedging effectiveness.
- Subjects
EXOTIC options (Finance); OPTIONS (Finance); PRICING; EMPIRICAL research; CAPITAL assets pricing model; HEDGING (Finance); TESTING; RISK assessment; FINANCIAL performance
- Publication
Financial Management (Wiley-Blackwell), 2009, Vol 38, Issue 4, p889
- ISSN
0046-3892
- Publication type
Article
- DOI
10.1111/j.1755-053X.2009.01060.x