Paper #1475

Títol:

Pricing and hedging Margrabe options with stochastic volatilities

Autors:

Elisa Alòs i Thorsten Rheinländer

Data:

Març 2015 (Revisió: Febrer 2017)

Resum:

A Margrabe or exchange option is an option to exchange one asset for another. In a general stochastic volatility framework, by taking the second asset as a numeraire,we derive pricing as well as approximate pricing formulae for Margrabe options. The correlated Stein & Stein and the 3=2 model are studied as particular examples. Moreover, we derive the general mean-variance optimal hedging strategy and show that it is a delta-hedge only in case of zero correlation between asset prices and volatility.

Paraules clau:

Stochastic volatility; Margrabe options; change of numeraire; mean-variance hedging; Malliavin calculus

Àrea de Recerca:

Estadística, Econometria i Mètodes Quantitatius

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