deltahedging.m

Numerical Methods In_Finance And Economics Matlab Source Code

function P = DeltaHedging(S0,K,mu,sigma,r,T,Paths)
[NRepl,NSteps] = size(Paths);
NSteps = NSteps - 1;
Cost = zeros(NRepl,1);
CashFlows = zeros(1,NSteps+1);
dt = T/NSteps;
DiscountFactors = exp(-r*(0:1:NSteps)*dt);
for i=1:NRepl
    Path = Paths(i,:);
    Position = 0;
    Deltas = blsdelta(Path(1:NSteps),K,r,T-(0:NSteps-1)*dt,sigma);
    for j=1:NSteps;
        CashFlows(j) = (Position - Deltas(j))*Path(j);
        Position = Deltas(j);
    end
    if Path(NSteps+1) > K
        CashFlows(NSteps+1) = K - (1-Position)*Path(NSteps+1);
    else
        CashFlows(NSteps+1) = Position*Path(NSteps+1);
    end
    Cost(i) = -CashFlows*DiscountFactors';
end
P = mean(Cost);