EVALUATING EFFECTIVENESS OF IRON CONDOR AND SHORT STRANGLE STRATEGIES AS HEDGING INSTRUMENTS FOR NIKKEI 225 INDEX: A STANDARD AND ANTITHETIC MONTE CARLO APPROACH

Abstract

Global equity markets, including the Nikkei 225 Index, often experience high volatility due to economic and geopolitical factors. Sudden price changes may cause significant losses, making hedging essential for managing extreme risks and preserving portfolio value. This study evaluates the effectiveness of two option strategies, Iron Condor and short Strangle, as hedging tools for the Nikkei 225. The dataset consists of daily closing prices of the Nikkei 225 index, obtained from the Investing.com website (https://id.investing.com). The methodology combines Monte Carlo simulation-based and Antithetic Monte Carlo on the Geometric Brownian Motion model to generate future price paths, and the Black-Scholes-Merton model to value option premiums. The Iron Condor, a hedged strategy, limits both profit and loss, offering stability for conservative investors. The short Strangle, while potentially more profitable, exposes investors to unlimited downside risk. Simulation results show that the short Strangle yields higher average returns but with much greater volatility. In contrast, the Iron Condor provides more stable and controlled outcomes with lower extreme risk. Based on quantitative metrics such as mean profit, standard deviation, Value-at-Risk, and loss probability, the Iron Condor is concluded to be more effective for hedging in low-to-moderate volatility markets. This study offers practical insights for investors and risk managers when choosing risk management strategies based on individual risk tolerance.