Risk 1 - Hans Buehler

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Daily Return / Initial Fair Value Modeling <strong>Risk</strong> – Basics 40% Delta-Hedging an European Call 500% 30% 20% LogSqRet Unhedged 450% 400% 350% 10% Hedged 300% 250% 0% 200% -10% -20% High daily volatility leads to deterioration of hedging performance. 150% 100% 50% -30% 04-Jul-08 04-Sep-08 04-Nov-08 04-Jan-09 04-Mar-09 04-May-09 0% 15
Probability Modeling <strong>Risk</strong> – Basics 70% Effect of Delta Hedging on the Return Distribution for ATM Calls 60% 50% 40% 30% Unhedged 2w Unhedged 1m Unhedged 2m Hedged 2w Hedged 1m Hedged 2m 20% 10% Marked reduction in tail risk Marked reduction in tail risk 0% -50% -43% -37% -30% -23% -17% -10% -3% 3% 10% 17% 23% 30% 37% 43% 50% __ Period Feb 06 – April 07 16
Page 1 and 2: Equity Derivatives Teach-In Modelin
Page 3 and 4: Contents • Introduction, Overview
Page 5 and 6: Modeling Risk Basics 4
Page 7 and 8: Modeling Risk - Basics Black & Scho
Page 13 and 14: Fair Value -200% -180% -160% -140%
Page 15: Daily Return / Initial Fair Value M
Page 23 and 24: Modeling Risk - Local Volatility Bl
Page 25 and 26: Modeling Risk - Local Volatility Bl
Page 27 and 28: Implied Vol 8346 9737 11128 12519 1
Page 29 and 30: Modeling Risk - Local Volatility Du
Page 31 and 32: Implied Volatility Implied Volatili
Page 33 and 34: Thank you very much for your attent

Risk 1 - Hans Buehler

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