Performance of the Delta-Hedging Strategies Based on the Heston Model and the Black Scholes Model on Meta Platforms

Yehong Li

2022

Abstract

This paper researches the performance of the Delta-Hedging strategies and compares the different results between the Black Scholes (BSM) model and the Heston model. In this study, parameters in two models are calibrated separately by utilizing data on ten options on the stock of Meta Platforms. Then, after the two models have been built, the price of the options and options’ delta values can be calculated. The delta hedging portfolios are composed of one share of a call option and delta shares of the underlying stock. Finally, the results of different strategies are compared. The sum of squared errors (SSE) of the BSM model is higher than the SSE of the Heston model. It means that the Heston model prices the options more precisely than the Black Scholes model. In addition, both two models can transfer the risk of fluctuating prices by implementing delta-hedging strategies. This paper is helpful for investors to build their portfolios by using different models in option pricing.

Paper Citation

in Harvard Style

Li Y. (2022). Performance of the Delta-Hedging Strategies Based on the Heston Model and the Black Scholes Model on Meta Platforms. In Proceedings of the 4th International Conference on Economic Management and Model Engineering - Volume 1: ICEMME; ISBN 978-989-758-636-1, SciTePress, pages 366-371. DOI: 10.5220/0012033200003620

in Bibtex Style

@conference{icemme22,
author={Yehong Li},
title={Performance of the Delta-Hedging Strategies Based on the Heston Model and the Black Scholes Model on Meta Platforms},
booktitle={Proceedings of the 4th International Conference on Economic Management and Model Engineering - Volume 1: ICEMME},
year={2022},
pages={366-371},
publisher={SciTePress},
organization={INSTICC},
doi={10.5220/0012033200003620},
isbn={978-989-758-636-1},
}

in EndNote Style

TY - CONF

JO - Proceedings of the 4th International Conference on Economic Management and Model Engineering - Volume 1: ICEMME
TI - Performance of the Delta-Hedging Strategies Based on the Heston Model and the Black Scholes Model on Meta Platforms
SN - 978-989-758-636-1
AU - Li Y.
PY - 2022
SP - 366
EP - 371
DO - 10.5220/0012033200003620
PB - SciTePress