Option Hedging Taking Into Account Transaction Costs

Student: Amrakhov Denis

Faculty: International College of Economics and Finance

Educational Programme: Double degree programme in Economics of the NRU HSE and the University of London (Bachelor)

Year of Graduation: 2021

This thesis paper is dedicated to the optimal option hedging in the presence of transaction costs. The research begins with a deep literature review, which encompasses the full range of papers on the topic (both classic and modern). Then the theoretical model of option hedging is developed, gradually relaxing unrealistic assumptions (transaction costs absence, normally distributed error term, homoskedasticity). After that, the Monte-Carlo approach is utilized for hedging simulations and some aspects of modern portfolio theory (the capital market line) for optimal hedging frequency detection.

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