Comparison of Local Risk Minimization †Free Samples to Students

Question: Discuss about the Comparison of Local Risk Minimization. Answer: Introduction: The overall table mainly uses put call parity, which directly help in identifying the arbitrage opportunity management. This put call parity mainly includes being long on stock, long on put and short of call, which directly helps in gathering relevant value of the portfolio. Moreover, the arbitrage opportunity has mainly allowed the investors to gain a net cash flow from operations of 1,241.38 by selling 1000 shares of the company. Cerreia-Vioglio, Maccheroni and Marinacci (2015) stated that put call parity mainly allows the investors to adequately take advantage of the arbitrage opportunity portrayed in the stock. Particulars Value Portfolio worth 150,000,000 Put option worth 145,000,000 Volatility 15% Risk free rate management 4% Term 0.46 Dividend yield 3% D1 0.43 D2 0.33 Call 10,482,628.83 Put 2,830,264.45 Delta 0.67 Shorting 99,901,488.09 Percentage of short 33.40% The above table mainly depicts that overall 33.40% of the portfolio value i been sold for attaining adequate hedge. Particulars Value Portfolio worth 145,000,000 Put option worth 145,000,000 Volatility 15% Risk free rate 4% Term 0.44 Dividend yield 3% D1 0.09 D2 (0.01) Call 7,028,476.44 Put 4,485,652.36 Delta 0.54 Shorting 77,942,091.51 Percentage of short 46.25% Shorting more shares 12.85% The above table mainly states that value of the portfolio management has declined, which directly resulted in additional shares being sold for adequately hedging the portfolio. Particulars Value Portfolio worth 148,000,000 Put option worth 145,000,000 volatility 15% Risk free rate 4% Term 0.42 Dividend yield 3% D1 0.30 D2 0.20 Call 8,733,518.31 Put 3,300,318.84 Delta 0.62 Shorting 91,565,955.57 Percentage of short 38.13% Buying shares -8.12% The above table mainly states relevant increment in portfolio, which resulted in buying back the shares for achieving adequate hedged portfolio. This could eventually allow the investors to adjust its position according to the delta of the stock. Imai and Arai (2015) mentioned that with the help of delta hedging organisation are mainly able to reduce the risk of their portfolio and adequately hedge their exposure in the volatile capital and currency market management. Reference: Cerreia-Vioglio, S., Maccheroni, F. and Marinacci, M., 2015. PutCall Parity and market frictions.Journal of Economic Theory,157, pp.730-762. Imai, Y. and Arai, T., 2015. Comparison of local risk minimization and delta hedging strategy for exponential Lvy models.JSIAM Letters,7, pp.77-80.