IDEAS home Printed from https://ideas.repec.org/h/spr/sprchp/978-1-4302-6134-6_5.html
   My bibliography  Save this book chapter

Optimal Hedging Monte Carlo Methods

In: Practical Methods of Financial Engineering and Risk Management

Author

Listed:
  • Rupak Chatterjee

Abstract

Leverage in the financial markets is one of the oldest techniques to increase one’s gains in an investment. It has also has lead to colossal losses and defaults. Leverage within an investment exists when an investor is exposed to a higher capital base than his or her original capital inlay. The margin mechanism of buying futures, as explained in Chapter 1, is a typical example of leverage. One posts margin of 5%–15% of the futures contract value but is exposed to 100% of the gains or losses of the notional amount of the futures contract. Exchanges will reduce the risk of this leverage in futures contracts by remargining daily using margin calls. Derivatives securities are another way to increase leverage. The call and put options described in Chapter 1 are standard ways to go long or short an underlying asset using leverage. A call option costing $5 and expiring $10 in the money creates a 200% return on investment. If this call expires out of the money, the loss is 100%.

Suggested Citation

  • Rupak Chatterjee, 2014. "Optimal Hedging Monte Carlo Methods," Springer Books, in: Practical Methods of Financial Engineering and Risk Management, chapter 0, pages 195-236, Springer.
    • Handle: RePEc:spr:sprchp:978-1-4302-6134-6_5
    DOI: 10.1007/978-1-4302-6134-6_5
    as

    Download full text from publisher

    To our knowledge, this item is not available for download. To find whether it is available, there are three options:
    1. Check below whether another version of this item is available online.
    2. Check on the provider's web page whether it is in fact available.
    3. Perform a search for a similarly titled item that would be available.

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:spr:sprchp:978-1-4302-6134-6_5. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no bibliographic references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Sonal Shukla or Springer Nature Abstracting and Indexing (email available below). General contact details of provider: http://www.springer.com .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.