P&L of Dynamically Hedged Option Strategy with Black-Scholes-Merton (BSM) Model

Run python example.py to generate results.

Note that the model is built using functional recursion. For longer simulations with large number of time steps the Python interpreter raises RecursionError. Use sys.setrecursionlimit to increase recursion depth.

Requirements

The code is written for Python 3.5+ and requires the following packages:

• numpy
• matplotlib
• scipy

To install these packages on Linux or MacOS system run pip install numpy matplotlib scipy from the terminal.

Modules

• simulation.py P&L simulation of dynamic delta hedging strategy
• model.py BSM model for pricing European call options and geometric Brownian motion for underlying stock price

Usage

The project can be executed for educational purpose in the given form python example.py. Alternatively, the modules contain public functions that can be used to create different hedging strategies and simulations.

The code is open source and licensed under the terms of Apache license (see LICENSE).