System and method for creating, managing and trading hedge...

Details System and method for creating, managing and trading hedge... System and method for creating, managing and trading hedge...

2011-02-08

2011-02-08

Kazimi, Hani (Department: 3691)

Data processing: financial, business practice, management, or co

Automated electrical financial or business practice or...

Finance

C705S035000, C705S037000

Reexamination Certificate

active

07885885

ABSTRACT:
The present invention discloses apparatuses, systems and methods for providing optimal hedge portfolios that minimize single stock idiosyncratic risk for a given level of transactional costs. This is accomplished by deriving hedge portfolios with the maximum effective n for various levels of transaction costs. In one exemplary embodiment the maximum effective n portfolios are derived by starting with a sample portfolio, such as a capital weighted index, and using a hill climbing algorithm to iteratively modify the sample portfolio to map out the optimal effective n portfolios.

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Jaksa Cvitanic, Ioannis Karatzas; “Hedging and Portfolio Optimization Under Transaction Costs: A Martingale Approach”; Oct. 1995; Mathematical Finance 6 (1996), p. 113-165.
Jacek Gondzio, Roy Kouwenberg, Ton Vorst; “Hedging Options under Transaction Costs and Stochastic Volatility”; Jan. 31, 2000.
Grannan, E R, & Swindle, G H. (1996). “Minimizing transaction costs of option hedging strategies”; Mathematical Finance, 6(4), 341; from ABI/INFORM Global. (Document ID: 10498538).

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