Dynamic Delta Hedging Strategy Implementation

The purpose of this project was to implement a Dynamic Delta Hedging strategy for European Options in C++. Delta Hedging is a great strategy for trying to create a neutral portfolio to minimize risk exposure.

Folder Structure:

To run this program, you need to have a C++11 compiler installed as well as the boost and quantlib libraries.

Folder Structure:

• /bin: compiled executable files
• /data: input data files for Part II
• /doc: documentation files
• /include: .h header files
• /results: output csv files
• /src: .cpp files
• makefile: makefile to compile and run the programs

Compiling and running the Program:

Before compiling and running the program, you should make sure that the paths in "makefile" reflect the ones in your machine. If you are using a Mac, these are the commands to compile and run the program:

make (compile main file)

make run (run main file)

make compile_test (compile unit test)

make run_test (run compiled unit test)

C++ Classes:

For this project, I implemented 3 main classes:

• option: this is a generic option class
• black_scholes: this class inherits the option class and adds functionality specific to the black scholes model
• stock: this class was implemented to generate stock prices using the following formula:

Output Example:

• For Part I of the project, I implemented the hedging strategy 1000 different times. The outputs can be found in the results folder. Here are the plots for one of those strategies:

• The output for Part II is also in the results folder.