| Περίληψη : | This dissertation focuses on option pricing and dynamic hedging strategies. The goal is to present the facts about option pricing and dynamic hedging and determine which is best for the purposes of implantation.In the first chapter we begin by giving some definitions about the market and its kinds such as exchange traded market and over-the-counter market. Also we define vanilla options and the properties of call and put options such as payoffs. The next chapter is about the pricing techniques and methods that are used to valuate stock options. Some of them are, the Binomial tree, the Black-Scholes model and Monte-Carlo simulation.“What are these methods for?”, “How do they work?”, “How did they form?” and “How did they evolve?” are some questions that are answered in this chapter through a detailed analysis and representation of each pricing model.In chapter 3 the main subject is hedging strategies and techniques. Hedging is what an investor does to reduce his risk. In other words, is an insurance against unforeseen events. There are numerous hedging techniques. The simple ones involve buying or selling call or put options and the complex ones involve making combinations of going simultaneously long or short or both in one or more call or put options or a combination of those with stocks. Also in this chapter we analyze the “Greeks’ which can help an investor examine the risk of his investment. Chapter 4 is about volatility. Volatility is the most important factor in option pricing and refers to all possible outcomes of an uncertain variable. There are two types of volatility, historical and implied. Also, there are some models that are used to describe and measure volatility such as the ARCH model, the EWMA model and the GARCH model.The final Chapter contains the implementation of pricing some stock options and performing the delta hedging strategy. The stocks were chosen from the Euro Stoxx 50index and they represent companies from various industry sectors and countries. We proceed to pricing the stock options with the Black-Scholes model and using the GARCH (1,1) and EGARCH (1,1) models to forecast the volatility that is used in the formula. The results are then used to compare the forecasting models and decide which is better. Next, we perform a portfolio analysis and compare the results according to some predefined constraints. In the end of the chapter, we demonstrate the delta hedging strategy from the view of an option writer. The expiration period is one month and there balancing frequency is daily. A geometric Brownian Motion(GBM) is used to simulate the stock prices until expiration. At the end of the chapter the conclusions of the implementation are presented.
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