Author(s)

Lingyan Cao, Zheng-Feng Guo

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In this paper, we employ two stock pricing models: a Black-Scholes (BS) model and a Variance Gamma (VG) model, and apply the maximum likelihood method (MLE) to estimate corresponding parameters in each model. With the estimated parameters, we conduct Monte Carlo simulations to simulate spot prices and deltas of the European call option at different time spots over different sample paths. We focus on calculating the deltas for the two models by the method of the in?nitesimal perturbation analysis (IPA). Then, we-nally, hedging profits under these two models are calculated and analyzed.

Likelihood Ratio, Variance Gamma, Geometric Brownian Motion, Delta Hedge

L. Cao and Z. Guo, "Analysis of Hedging Profits Under Two Stock Pricing Models," Journal of Mathematical Finance, Vol. 1 No. 3, 2011, pp. 120-124. doi: 10.4236/jmf.2011.13015.