Examples.Hedging
Class DrawCHGraphs_1

java.lang.Object
  java.awt.Component
      java.awt.Container
          java.awt.Window
              java.awt.Frame
                  javax.swing.JFrame
                      Examples.Hedging.DrawCHGraphs_1

All Implemented Interfaces:

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

public class DrawCHGraphs_1

extends javax.swing.JFrame

European calls on a constant volatility asset are hedged and the mean and standard deviation of the hedge profit and loss computed as a function of the strike price K. Mean and standard deviation are reported as a percentage of the Black Scholes call price.

The two functions are sampled (computed) at evenly spaced strikes K between K_min and K_max and the (linearly interpolated) graphs displayed in two windows and saved as a jpeg files.

The main method brings up the GUI to set parameters and make choices. Parameters of type double are set using sliders. Choices are made by checking check boxes.

The hedge is rebalanced at each time step. Price paths of the underlying asset are simulated in the market probability. Various hedge deltas can be specified:

• analytic deltas (if analytic option price defined)
• analytic minimum variance deltas
• analytic quotient deltas

Both Analytic minimum variance deltas and analytic quotient deltas are computed under the market probability and are optional, check the corresponding check box in the GUI.

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

DrawCHGraphs_1()
Creates new form CalllSetUpWindow

Method Summary

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

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

DrawCHGraphs_1

public DrawCHGraphs_1()

Creates new form CalllSetUpWindow

Method Detail

main

public static void main(java.lang.String[] args)
                 throws java.io.FileNotFoundException,
                        java.io.IOException

Parameters:

args - the command line arguments

Throws:

java.io.FileNotFoundException

java.io.IOException

mainComputation

public void mainComputation()
                     throws java.io.FileNotFoundException,
                            java.io.IOException

Throws:

java.io.FileNotFoundException

java.io.IOException