Pricing and hedging lookback options using black-scholes in Borsa İstanbul

Date

2016

Author

Samuel Paul, Sharoy Augustine

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The lookback option is a path dependent option that looks at the behaviour of the underlying asset for a specified time frame known as the lookback period. The maximum (minimum) attained during the lookback period is used to determine the option's payoff. In this thesis, the floating strike lookback option, which uses the maximum to determine the strike price for the put options will be examined and will be applied to the assets appearing in the BIST30 index. We estimate the historical volatility of these assets and compute the price of the floating strike lookback options written on these assets using the Black Scholes (BS) framework. We then apply the delta hedging algorithm given by Black Scholes to see its replication performance for these lookback options. We apply the algorithm in two different periods: October 2015 and January 2016.

Subject Keywords

Pricing., Capital market., Options (Finance)., Stock exchanges.

URI

http://etd.lib.metu.edu.tr/upload/12620412/index.pdf
https://hdl.handle.net/11511/26033

Collections

Graduate School of Applied Mathematics, Thesis

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Citation Formats

S. A. Samuel Paul, “Pricing and hedging lookback options using black-scholes in Borsa İstanbul,” M.S. - Master of Science, Middle East Technical University, 2016.