Optimal partial hedging in a discrete-time market as a knapsack problem
AbstractWe present a new approach for studying the problem of optimal hedging of a European option in a finite and complete discrete-time market model. We consider partial hedging strategies that maximize the success probability or minimize the expected shortfall under a cost constraint and show that these problems can be treated as so called knapsack problems, which are a widely researched subject in linear programming. This observation gives us better understanding of the problem of optimal hedging in discrete time. Copyright Springer-Verlag 2010
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.
Bibliographic InfoArticle provided by Springer in its journal Mathematical Methods of Operations Research.
Volume (Year): 72 (2010)
Issue (Month): 3 (December)
Contact details of provider:
Web page: http://www.springerlink.com/link.asp?id=120306
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Hans FÃllmer & Peter Leukert, 1999. "Quantile hedging," Finance and Stochastics, Springer, vol. 3(3), pages 251-273.
- Gino Favero, 2001. "Shortfall risk minimization under model uncertainty in the binomial case: adaptive and robust approaches," Computational Statistics, Springer, vol. 53(3), pages 493-503, July.
- Martello, Silvano & Pisinger, David & Toth, Paolo, 2000. "New trends in exact algorithms for the 0-1 knapsack problem," European Journal of Operational Research, Elsevier, vol. 123(2), pages 325-332, June.
- Hans FÃllmer & Peter Leukert, 2000. "Efficient hedging: Cost versus shortfall risk," Finance and Stochastics, Springer, vol. 4(2), pages 117-146.
- Gino Favero & Tiziano Vargiolu, 2006. "Shortfall risk minimising strategies in the binomial model: characterisation and convergence," Computational Statistics, Springer, vol. 64(2), pages 237-253, October.
- Peter Lindberg, 2012. "Optimal partial hedging of an American option: shifting the focus to the expiration date," Computational Statistics, Springer, vol. 75(3), pages 221-243, June.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Guenther Eichhorn) or (Christopher F Baum).
If references are entirely missing, you can add them using this form.