Use the DerivaGem Application Builder software to compare the effectiveness of daily delta hedging for (a) the

Question:

Use the DerivaGem Application Builder software to compare the effectiveness of daily delta hedging for (a) the option considered in Tables 19.2 and 19.3 and (b) an average price call with the same parameters. Use Sample Application C. For the average price option you will find it necessary to change the calculation of the option price in cell C16, the payoffs in cells H15 and H16, and the deltas (cells G46 to G186 and N46 to N186). Carry out 20 runs for each option by repeatedly pressing F9. On each run record the cost of writing and hedging the option, the volume of trading over the whole 20 weeks and the volume of trading between weeks 11 and 20. Comment on the results.
Monte Carlo simulation
Monte Carlo simulation is a technique used to understand the impact of risk and uncertainty in financial, project management, cost, and other forecasting models. A Monte Carlo simulator helps one visualize most or all of the potential outcomes to...