Na_Andrew.pdf (1.22 MB)
Download file

Pricing and hedging Asian options under Levy processes and robust long-term investing with learning about stock returns

Download (1.22 MB)
posted on 2021-05-23, 14:26 authored by Andrew Na
In this work we propose a parametric model using the techniques of time-changed subordination that captures the implied volatility smile. We demonstrate that the Fourier-Cosine method can be used in a semi-static way to hedge for quadratic, VaR and AVaR risk. We also observe that investors looking to hedge VaR can simply hold the amount in a portfolio of mostly cash, whereas an investor hedging AVaR will need to hold more risky assets. We also extend ES risk to a robust framework. A conditional calibration method to calibrate the bivariate model is proposed. For a robust long-term investor who maximizes their recursive utility and learns about the stock returns, as the willingness to substitute over time increases, the equity demand decreases and consumption-wealth ratio increases. As the preference for robustness increases the demand for risk decreases. For a positive correlation, we observe that learning about returns encourages the investor to short the bond at all levels of u and vice versa





Master of Science


Applied Mathematics

Granting Institution

Ryerson University

LAC Thesis Type