Pricing and Hedging of Derivative Securities

Student: Garafiev Rustam

Educational Programme: Applied Economics (Master)

Year of Graduation: 2016

This study is intended to review existing derivative securities pricing models in case of option contracts. The paper provides qualitative and numerical comparison of the following models: • classical Black-Scholes model and its modifications • binomial model with discrete time • finite difference method • Monte Carlo method Numerically, it was demonstrated that the most accurate of the discussed methods is the method of solving partial differential equation for options value. The main scientific value of this study consists of its practical orientation, in this paper was demonstrated: 1) realization of dela hedging strategy; 2) possibility of using numerical methods of option pricing for creating trading strategies.

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