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SupOU-based and Related Fractal Activity Time Models for Risky Assets with Dependence
School of Mathematics, Cardiff University, United Kingdom.
School of Mathematics, Cardiff University, United Kingdom.
Örebro University, Örebro University School of Business. Department of Mathematics, National University of Kyiv-Mohyla Academy, Ukraine.ORCID iD: 0000-0002-7652-8157
2023 (English)In: Methodology and Computing in Applied Probability, ISSN 1387-5841, E-ISSN 1573-7713Article in journal (Refereed) Submitted
Abstract [en]

We propose several new models in ecophysics known as the Fractal Activity Time Geometric Brownian Motion (FATGBM) models with Student marginals. We summarize four models that construct stochastic processes of underlying prices with short-range and long-range dependencies. We derive solutions of option Greeks and compare with those in the Black-Scholes model. We analyse perfor-mance of delta hedging strategy using simulated time series data and verify that hedging errors are biased particularly for long-range dependence cases. We also apply underlying model calibration on S&P 500 index (SPX) and the U.S./Euro rate, and implement delta hedging on SPX options.

Place, publisher, year, edition, pages
Springer, 2023.
Keywords [en]
supOU processes, Fractal activity time, Student processes, Dependencestructure, Option pricing, Hedging
National Category
Mathematics
Identifiers
URN: urn:nbn:se:oru:diva-110806DOI: 10.21203/rs.3.rs-3170720/v1OAI: oai:DiVA.org:oru-110806DiVA, id: diva2:1829012
Available from: 2024-01-17 Created: 2024-01-17 Last updated: 2024-01-18Bibliographically approved

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Shchestyuk, Nataliya

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