Examples.Hedging
Class CallHedgeStatistics

java.lang.Object
  java.awt.Component
      java.awt.Container
          java.awt.Window
              java.awt.Frame
                  javax.swing.JFrame
                      Examples.Hedging.CallHedgeStatistics

All Implemented Interfaces:

javax.accessibility.Accessible, java.awt.image.ImageObserver, java.awt.MenuContainer, javax.swing.RootPaneContainer, java.io.Serializable, javax.swing.WindowConstants

public class CallHedgeStatistics

extends javax.swing.JFrame

Computes the mean and standard deviation of the profit/loss from hedging a European call and several other statistics associated with the hedge. The mean and standard deviation are reported as a percent of the fair (Black Scholes) call price. Various hedge deltas can be chosen:

• analytic deltas
• minimum variance deltas
• quotient deltas
• Monte Carlo deltas

The price paths of the underlying are simulated in the market probability. The hedge using analytic deltas is included automatically. The computational effort using analytic deltas is O(nPath) and this goes up to O(nPath*nBranch) for nonanalytic deltas. Here nPath is the number of price paths of the underlying and nBranch the number of path branches spent on each conditional expectation.

Analytic minimum variance deltas and analytic qotient deltas are not included since the present implementation computes the values under the assumption that the hedge is rebalanced at each time step.

Thus the computational effort using nonanalytic deltas is thousands of times higher than for analytic deltas. Consequently nonanalytic deltas must be chosen explicitly by checking the corresponding check box in the GUI. Values of type double are set using sliders.

The hedge is rebalanced according to two different policies:

• Periodic rebalance. The hedge is rebalanced a fixed number of times at equal time intervals. The actual number of hedge trades can differ slightly from the number sepcified by the user.
• Reactive rebalance The hedge is rebalanced as soon as the price of the underlying has moved by a certain trigger percentage chosen by the user.

Transaction costs have a fixed and a proportional component. The fixed component also has to be normalized to cost per share. If you transact in lots of 1000 shares and such a trade costs 10 dollars, fixed transaction costs are 10/1000=0.01. The proportional transaction costs come from bid-ask spread etc., 0.1 is a conservative number. Transaction costs are assumed to remain constant in today's dollars.

See Also:

Serialized Form

Nested Class Summary

Nested classes inherited from class javax.swing.JFrame

javax.swing.JFrame.AccessibleJFrame

Nested classes inherited from class java.awt.Frame

java.awt.Frame.AccessibleAWTFrame

Nested classes inherited from class java.awt.Window

java.awt.Window.AccessibleAWTWindow

Nested classes inherited from class java.awt.Container

java.awt.Container.AccessibleAWTContainer

Nested classes inherited from class java.awt.Component

java.awt.Component.AccessibleAWTComponent, java.awt.Component.BltBufferStrategy, java.awt.Component.FlipBufferStrategy

Field Summary

Fields inherited from class javax.swing.JFrame

accessibleContext, EXIT_ON_CLOSE, rootPane, rootPaneCheckingEnabled

Fields inherited from class java.awt.Frame

CROSSHAIR_CURSOR, DEFAULT_CURSOR, E_RESIZE_CURSOR, HAND_CURSOR, ICONIFIED, MAXIMIZED_BOTH, MAXIMIZED_HORIZ, MAXIMIZED_VERT, MOVE_CURSOR, N_RESIZE_CURSOR, NE_RESIZE_CURSOR, NORMAL, NW_RESIZE_CURSOR, S_RESIZE_CURSOR, SE_RESIZE_CURSOR, SW_RESIZE_CURSOR, TEXT_CURSOR, W_RESIZE_CURSOR, WAIT_CURSOR

Fields inherited from class java.awt.Component

BOTTOM_ALIGNMENT, CENTER_ALIGNMENT, LEFT_ALIGNMENT, RIGHT_ALIGNMENT, TOP_ALIGNMENT

Fields inherited from interface javax.swing.WindowConstants

DISPOSE_ON_CLOSE, DO_NOTHING_ON_CLOSE, HIDE_ON_CLOSE

Fields inherited from interface java.awt.image.ImageObserver

ABORT, ALLBITS, ERROR, FRAMEBITS, HEIGHT, PROPERTIES, SOMEBITS, WIDTH

Constructor Summary

CallHedgeStatistics()
Creates new form CallHedge

Method Summary

static void

main(java.lang.String[] args) Initialize defaults, show main window

Methods inherited from class javax.swing.JFrame

addImpl, createRootPane, frameInit, getAccessibleContext, getContentPane, getDefaultCloseOperation, getGlassPane, getJMenuBar, getLayeredPane, getRootPane, isDefaultLookAndFeelDecorated, isRootPaneCheckingEnabled, paramString, processWindowEvent, remove, setContentPane, setDefaultCloseOperation, setDefaultLookAndFeelDecorated, setGlassPane, setJMenuBar, setLayeredPane, setLayout, setRootPane, setRootPaneCheckingEnabled, update

Methods inherited from class java.awt.Frame

addNotify, finalize, getCursorType, getExtendedState, getFrames, getIconImage, getMaximizedBounds, getMenuBar, getState, getTitle, isResizable, isUndecorated, remove, removeNotify, setCursor, setExtendedState, setIconImage, setMaximizedBounds, setMenuBar, setResizable, setState, setTitle, setUndecorated

Methods inherited from class java.awt.Window

addPropertyChangeListener, addPropertyChangeListener, addWindowFocusListener, addWindowListener, addWindowStateListener, applyResourceBundle, applyResourceBundle, createBufferStrategy, createBufferStrategy, dispose, getBufferStrategy, getFocusableWindowState, getFocusCycleRootAncestor, getFocusOwner, getFocusTraversalKeys, getGraphicsConfiguration, getInputContext, getListeners, getLocale, getMostRecentFocusOwner, getOwnedWindows, getOwner, getToolkit, getWarningString, getWindowFocusListeners, getWindowListeners, getWindowStateListeners, hide, isActive, isFocusableWindow, isFocusCycleRoot, isFocused, isShowing, pack, postEvent, processEvent, processWindowFocusEvent, processWindowStateEvent, removeWindowFocusListener, removeWindowListener, removeWindowStateListener, setCursor, setFocusableWindowState, setFocusCycleRoot, setLocationRelativeTo, show, toBack, toFront

Methods inherited from class java.awt.Container

add, add, add, add, add, addContainerListener, applyComponentOrientation, areFocusTraversalKeysSet, countComponents, deliverEvent, doLayout, findComponentAt, findComponentAt, getAlignmentX, getAlignmentY, getComponent, getComponentAt, getComponentAt, getComponentCount, getComponents, getContainerListeners, getFocusTraversalPolicy, getInsets, getLayout, getMaximumSize, getMinimumSize, getPreferredSize, insets, invalidate, isAncestorOf, isFocusCycleRoot, isFocusTraversalPolicySet, layout, list, list, locate, minimumSize, paint, paintComponents, preferredSize, print, printComponents, processContainerEvent, remove, removeAll, removeContainerListener, setFocusTraversalKeys, setFocusTraversalPolicy, setFont, transferFocusBackward, transferFocusDownCycle, validate, validateTree

Methods inherited from class java.awt.Component

action, add, addComponentListener, addFocusListener, addHierarchyBoundsListener, addHierarchyListener, addInputMethodListener, addKeyListener, addMouseListener, addMouseMotionListener, addMouseWheelListener, bounds, checkImage, checkImage, coalesceEvents, contains, contains, createImage, createImage, createVolatileImage, createVolatileImage, disable, disableEvents, dispatchEvent, enable, enable, enableEvents, enableInputMethods, firePropertyChange, firePropertyChange, firePropertyChange, getBackground, getBounds, getBounds, getColorModel, getComponentListeners, getComponentOrientation, getCursor, getDropTarget, getFocusListeners, getFocusTraversalKeysEnabled, getFont, getFontMetrics, getForeground, getGraphics, getHeight, getHierarchyBoundsListeners, getHierarchyListeners, getIgnoreRepaint, getInputMethodListeners, getInputMethodRequests, getKeyListeners, getLocation, getLocation, getLocationOnScreen, getMouseListeners, getMouseMotionListeners, getMouseWheelListeners, getName, getParent, getPeer, getPropertyChangeListeners, getPropertyChangeListeners, getSize, getSize, getTreeLock, getWidth, getX, getY, gotFocus, handleEvent, hasFocus, imageUpdate, inside, isBackgroundSet, isCursorSet, isDisplayable, isDoubleBuffered, isEnabled, isFocusable, isFocusOwner, isFocusTraversable, isFontSet, isForegroundSet, isLightweight, isOpaque, isValid, isVisible, keyDown, keyUp, list, list, list, location, lostFocus, mouseDown, mouseDrag, mouseEnter, mouseExit, mouseMove, mouseUp, move, nextFocus, paintAll, prepareImage, prepareImage, printAll, processComponentEvent, processFocusEvent, processHierarchyBoundsEvent, processHierarchyEvent, processInputMethodEvent, processKeyEvent, processMouseEvent, processMouseMotionEvent, processMouseWheelEvent, removeComponentListener, removeFocusListener, removeHierarchyBoundsListener, removeHierarchyListener, removeInputMethodListener, removeKeyListener, removeMouseListener, removeMouseMotionListener, removeMouseWheelListener, removePropertyChangeListener, removePropertyChangeListener, repaint, repaint, repaint, repaint, requestFocus, requestFocus, requestFocusInWindow, requestFocusInWindow, reshape, resize, resize, setBackground, setBounds, setBounds, setComponentOrientation, setDropTarget, setEnabled, setFocusable, setFocusTraversalKeysEnabled, setForeground, setIgnoreRepaint, setLocale, setLocation, setLocation, setName, setSize, setSize, setVisible, show, size, toString, transferFocus, transferFocusUpCycle

Methods inherited from class java.lang.Object

clone, equals, getClass, hashCode, notify, notifyAll, wait, wait, wait

Methods inherited from interface java.awt.MenuContainer

getFont, postEvent

Constructor Detail

CallHedgeStatistics

public CallHedgeStatistics()

Creates new form CallHedge

Method Detail

main

public static void main(java.lang.String[] args)

Initialize defaults, show main window