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The cost of using misspecified models to exercise and hedge American options on coupon bearing bonds
This dissertation investigates the cost of using single-factor models to exercise and hedge American options on South African coupon bearing bonds, when the simulated market term structure is driven by a two-factor model. Even if the single factor models are re-calibrated on a daily basis to the ter...
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| Format: | Thesis |
| Language: | English |
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Division of Actuarial Science
2016
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| _version_ | 1867613291765825536 |
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| access_status_str | Open Access |
| author | Welihockyj, Alexander |
| author2 | Silverman, Searle |
| author_browse | Silverman, Searle Welihockyj, Alexander |
| author_facet | Silverman, Searle Welihockyj, Alexander |
| author_sort | Welihockyj, Alexander |
| collection | Thesis |
| description | This dissertation investigates the cost of using single-factor models to exercise and hedge American options on South African coupon bearing bonds, when the simulated market term structure is driven by a two-factor model. Even if the single factor models are re-calibrated on a daily basis to the term structure, we find that the exercise and hedge strategies can be suboptimal and incur large losses. There is a vast body of research suggesting that real market term structures are in actual fact driven by multiple factors, so suboptimal losses can be largely reduced by simply employing a well-specified multi-factor model. |
| format | Thesis |
| id | oai:open.uct.ac.za:11427/20532 |
| institution | University of Cape Town (South Africa) |
| language | eng |
| last_indexed | 2026-06-10T12:33:48.261Z |
| license_str | Not specified — see source repository |
| provenance_str_mv | Harvested via OAI-PMH from UCTD — University of Cape Town Open Access Repository |
| publishDate | 2016 |
| publishDateRange | 2016 |
| publishDateSort | 2016 |
| publisher | Division of Actuarial Science |
| publisherStr | Division of Actuarial Science |
| record_format | dspace |
| source_str | UCTD — University of Cape Town Open Access Repository |
| spelling | oai:open.uct.ac.za:11427/20532 The cost of using misspecified models to exercise and hedge American options on coupon bearing bonds Welihockyj, Alexander Silverman, Searle McWalter, Thomas Mathematical Finance This dissertation investigates the cost of using single-factor models to exercise and hedge American options on South African coupon bearing bonds, when the simulated market term structure is driven by a two-factor model. Even if the single factor models are re-calibrated on a daily basis to the term structure, we find that the exercise and hedge strategies can be suboptimal and incur large losses. There is a vast body of research suggesting that real market term structures are in actual fact driven by multiple factors, so suboptimal losses can be largely reduced by simply employing a well-specified multi-factor model. 2016-07-20T12:29:40Z 2016-07-20T12:29:40Z 2016 Master Thesis Masters MPhil http://hdl.handle.net/11427/20532 eng application/pdf Division of Actuarial Science Faculty of Commerce University of Cape Town |
| spellingShingle | Mathematical Finance Welihockyj, Alexander The cost of using misspecified models to exercise and hedge American options on coupon bearing bonds |
| thesis_degree_str | Master's |
| title | The cost of using misspecified models to exercise and hedge American options on coupon bearing bonds |
| title_full | The cost of using misspecified models to exercise and hedge American options on coupon bearing bonds |
| title_fullStr | The cost of using misspecified models to exercise and hedge American options on coupon bearing bonds |
| title_full_unstemmed | The cost of using misspecified models to exercise and hedge American options on coupon bearing bonds |
| title_short | The cost of using misspecified models to exercise and hedge American options on coupon bearing bonds |
| title_sort | cost of using misspecified models to exercise and hedge american options on coupon bearing bonds |
| topic | Mathematical Finance |
| url | http://hdl.handle.net/11427/20532 |
| work_keys_str_mv | AT welihockyjalexander thecostofusingmisspecifiedmodelstoexerciseandhedgeamericanoptionsoncouponbearingbonds AT welihockyjalexander costofusingmisspecifiedmodelstoexerciseandhedgeamericanoptionsoncouponbearingbonds |