Hedging and calibration

Discrete hedging error, volatility surfaces, calibration, portfolio insurance and transaction costs.

7 planned

Step 21 is part of the option pricing path, a 22-step course from discounting to Black–Scholes.

No page in this subject is open yet. The planned list below shows what is coming, in learning order.

Planned

In learning order. These are not pages yet.

Principal protection: CPPI versus an option-based floorAdvanced undergrad
Discrete hedging error and implied volatilityAdvanced undergrad
Uncertain parameters: best- and worst-case prices from a parameter bandGraduate
How to build an arbitrage-aware volatility surfaceGraduate
Why a delta-hedged option earns gamma times the volatility gapInterview
Hedging with transaction costs: Leland's adjusted volatility and the no-trade bandGraduate
Why model calibration can have many plausible answersGraduate

Builds on Derivatives Arbitrage and risk-neutral pricing Numerical methods Stochastic calculus and SDEs Optimization Statistical inference Monte Carlo and numerical pricing

Leads to Volatility and jump models Derivatives Interest-rate models Market risk

Subjects marked “connection” are linked by a related idea, not by a prerequisite.