(2014-05-13) Papadimitriu-Pyrovolaki, J. (Jorge); Múnera-Gil, L. M. (Liz Maribel); Flórez-Aristizábal, L. M. (Liliana María)
The goal of this study is to develop a methodology to identify and hedge the residual risk generated
in buying and selling options with the same underlying asset, but that asset in each option
traded in different currencies. This study is done to facilitate the development of the equity option
business in Colombia, using the existing options on the Bancolombia ADR (American Depositary
Receipts) as a hedge. The steps followed were researching the details of the options on the ADR,
identifying the appropriate framework to use for hedging and valuation, identifying the residual
risk remaining in buying a call option on ADRs and the selling a call option on the Bancolombia
shares, and setting a series of forex operations that hedge the residual risk that is generated.
