Tid: 28 april 2008 kl 15.15-16.00

Plats : Seminarierummet 3733, Institutionen för matematik, KTH, Lindstedts väg 25, plan 7. Karta!

Föredragshållare: Erik Svensson

Titel: Modeling of Volatility Adjusted Leverage Options

Sammanfattning: In this thesis we consider Volatility Adjusted Leverage (VAL) options, a novel type of path dependent equity index derivative that has variable exposure to the underlying asset. The exposure is related to the realized volatiliy of the underlying in order to maintain a constant pre-defined target volatility. We price the derivative using Monte Carlo simulation in the standard Black-Scholes framework, Heston's stochastic volatility model and the Bates model, which combines stochastic volatility with jumps. The models were calibrated to an implied volatility surface of EuroStoxx 50. Our findings suggest that jumps affect the price of VAL options more than stochastic volatility. We also propose a simple and computationally efficient method to compute approximate prices. Furthermore, we illustrate how to approximately compute the delta of a VAL option and that the vega-risk is very small compared to vanilla options.

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