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On the performance of asymptotic locally risk minimising hedges in the Heston stochastic volatility model

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  • Sai Hung Marten Ting
  • Christian-Oliver Ewald

Abstract

This paper investigates the use of the asymptotic Heston solution in locally risk minimising hedging. The asymptotic Heston solution is presented along with issues that are relevant to its use. Comparison between the exact and asymptotic Heston hedges are made using both simulated and real historical data. The asymptotic Heston hedge is found to be a viable alternative to the exact hedge. It provides a means for faster calculation, while performing as well as the exact Heston hedge in the locally risk minimising framework.

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  • Sai Hung Marten Ting & Christian-Oliver Ewald, 2013. "On the performance of asymptotic locally risk minimising hedges in the Heston stochastic volatility model," Quantitative Finance, Taylor & Francis Journals, vol. 13(6), pages 939-954, May.
    • Handle: RePEc:taf:quantf:v:13:y:2013:i:6:p:939-954
    DOI: 10.1080/14697688.2012.691987
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    Cited by:

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    2. Chen, Jilong & Ewald, Christian-Oliver, 2017. "Pricing commodity futures options in the Schwartz multi factor model with stochastic volatility: An asymptotic method," International Review of Financial Analysis, Elsevier, vol. 52(C), pages 144-151.

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