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The Fundamental Theorem of Derivative Trading: Exposition, Extensions, Empirics

Rolf Poulsen
(Department of Marhematical Sciences, Copenhagen University)
Økonomiseminar
Fredag, 20 december, 2013, at 15:15-16:00, in Aud. D4 (1531-219)
Abstrakt:
The Fundamental Theorem of Derivative Trading says how large a hedge error we incur if we try to hedge a financial derivative (an option) using the wrong volatility. To a fundamentalist, the result is negative; to a practitioner it is fundamentally positive. In this talk I will explore the result: a self-contained proof, a multi-dimensional extension, a funny simulation experiment, and an application to real-world option data.
Kontaktperson: Kent Andersen (kent@imf.au.dk)