Question: Use the DerivaGem Application Builder software to compare the effectiveness of daily delta hedging for (a) the option considered in Tables 19.2 and 19.3 and

Use the DerivaGem Application Builder software to compare the effectiveness of daily delta hedging for (a) the option considered in Tables 19.2 and 19.3 and (b) an average price call with the same parameters. Use Sample Application C. For the average price option you will find it necessary to change the calculation of the option price in cell C16, the payoffs in cells H15 and H16, and the deltas (cells G46 to G186 and N46 to N186). Carry out 20 runs for each option by repeatedly pressing F9. On each run record the cost of writing and hedging the option, the volume of trading over the whole 20 weeks and the volume of trading between weeks 11 and 20. Comment on the results.

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For the regular option the theoretical price is about 240000 For the average price option ... View full answer

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