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Minimal Variance Hedging of Options with Student-t Underlying

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  • K. Pinn

Abstract

I explicitly work out closed form solutions for the optimal hedging strategies (in the sense of Bouchaud and Sornette) in the case of European call options, where the underlying is modeled by (unbiased) iid additive returns with Student-t distributions. The results may serve as illustrative examples for option pricing in the presence of fat tails.

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  • K. Pinn, 1999. "Minimal Variance Hedging of Options with Student-t Underlying," Papers cond-mat/9907421, arXiv.org, revised Dec 1999.
    • Handle: RePEc:arx:papers:cond-mat/9907421
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