On the Performance of Delta Hedging Strategies in Exponential L\'evy Models
AbstractWe consider the performance of non-optimal hedging strategies in exponential L\'evy models. Given that both the payoff of the contingent claim and the hedging strategy admit suitable integral representations, we use the Laplace transform approach of Hubalek et al. (2006) to derive semi-explicit formulas for the resulting mean squared hedging error in terms of the cumulant generating function of the underlying L\'evy process. In two numerical examples, we apply these results to compare the efficiency of the Black-Scholes hedge and the model delta to the mean-variance optimal hedge in a normal inverse Gaussian and a diffusion-extended CGMY L\'evy model.
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Bibliographic InfoPaper provided by arXiv.org in its series Papers with number 0911.4859.
Date of creation: Nov 2009
Date of revision: May 2011
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Web page: http://arxiv.org/
This paper has been announced in the following NEP Reports:
- NEP-ALL-2009-12-05 (All new papers)
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- St\'ephane Goutte & Nadia Oudjane & Francesco Russo, 2013. "Variance optimal hedging for continuous time additive processes and applications," Science & Finance (CFM) working paper archive 1302.1965, Science & Finance, Capital Fund Management.
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