Examples.Hedging
Class DrawCHGraphs_2

java.lang.Object
  java.awt.Component
      java.awt.Container
          java.awt.Window
              java.awt.Frame
                  javax.swing.JFrame
                      Examples.Hedging.DrawCHGraphs_2

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_2

extends javax.swing.JFrame

European calls on a constant volatility asset are hedged with analytic deltas and the mean and standard deviation of the hedge profit and loss computed as a function of the volatility sigma used in the computation of the hedge deltas. Mean and standard deviation are reported as a percentage of the Black Scholes call price.

The two functions are sampled (computed) at evenly spaced volatilities sigma between sigma_min and sigma_max and the (linearly interpolated) graphs displayed in a window and saved as a jpeg file.

The main method brings up the GUI to set parameters. Parameters of type double are set using sliders.

The idea is to analyze the effect of misjudging the true volatility of the underlying on hedge performance. Mean and standard deviation are computed from a sample of nPaths paths of the underlying asset simulated under the market probability.

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.

The computation is reasonably fast since no conditional expectations are involved (analytic deltas only).

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_2()
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_2

public DrawCHGraphs_2()

Creates new form CalllSetUpWindow

Method Detail

main

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

Parameters:

args - the command line arguments

mainComputation

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

Throws:

java.io.FileNotFoundException

java.io.IOException