Tid: 26 januari 2011 kl 15.15-16.00.

Plats : Seminarierummet 3733, Institutionen för matematik, KTH, Lindstedts väg 25. (observera dagen och lokalen), Karta!

Föredragshållare: Carl-Johan Johansson och Greger Sundqvist

Titel: Model risk in a hedging perspective (Examensarbete – Master thesis)

Abstract

This thesis' aim is to develop a framework for model risk analysis when hedging an option position. The framework has been split up into parameter, assumption and market state model risk and applied to Black and Scholes pricing formula as an example.

The single most important parameter of Black and Scholes formula is the estimation of the underlying's volatility. The strongest and most risky assumptions are that volatility is constant and that the logreturns are normal distributed. Black and Scholes formula is able to handle different market states but estimation of volatility is harder during turbulent times. The framework is applicable on all models used to calculate hedge ratios and may be helpful when developing frameworks for measuring model risk in other contexts.

The full report (pdf)

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