Application of Volatility Targeting Strategies within a Black-Scholes Framework

The traditional Black-Scholes (BS) model relies heavily on the assumption that underlying returns are normally distributed. In reality however there is a large amount of evidence to suggest that this assumption is weak and that actual return distributions are non-Gaussian. This dissertation looks at algorithmically generating a Volatility Targeting Strategy (VTS) which can be used as an underlying asset. The rationale here is that since the VTS has a constant prespecified level of volatility, its returns should be normally distributed, thus tending closer to an underlying that adheres to the assumptions of BS.

Grantor

African Institute of Financial Markets and Risk Management

Year dc:date.issued

2019

Author dc:creator

• Vakaloudis, Dmitri

Advisor dc:contributor.advisor

• Mahomed, Obeid

• Mathematical Finance

Handle dc:identifier.uri

http://hdl.handle.net/11427/31319

OAI identifier oai:identifier

oai:open.uct.ac.za:11427/31319