Minimization of Conditional Value at Risk for Spread Options under Capital Constraints

• Author / Creator

  Maksimov, Chingis

• The thesis deals with the problem of minimization of Conditional Value at Risk within the context of Margrabe market under constraints on the initial capital available. We propose to approximate the distribution of the difference between two lognormal random variables using normal distribution and derive a closed-form pricing formula for spread options. We use this idea along with the existing spread option pricing formulas to develop a new methodology for determining Conditional Value at Risk-efficient portfolios. We conclude that the approaches considered provide comparable results given that the parameters of the market are of particular form. Theoretical results are supported by numerical examples based on real financial data.

• Subjects / Keywords

  • CVaR
  • Capital constraints
  • Expected Shortfall
  • Spread option
  • Neyman-Pearson lemma
  • Risk management

• Graduation date

  Fall 2018

• Type of Item

  Thesis

• Degree

  Master of Science

• DOI

  https://doi.org/10.7939/R3WM14925

• License

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