Explicit formulas for the minimal variance hedging strategy in a martingale case
We explicitly compute the optimal strategy in discrete time for a European option and the variance of the corresponding hedging error under the hypothesis that the underlying is a martingale following a Geometric Brownian motion.
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Volume (Year): 33 (2010)
Issue (Month): 1 (May)
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References listed on IDEAS
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- Primbs, James A. & Yamada, Yuji, 2006. "A moment computation algorithm for the error in discrete dynamic hedging," Journal of Banking & Finance, Elsevier, vol. 30(2), pages 519-540, February.
- Friedrich Hubalek & Jan Kallsen & Leszek Krawczyk, 2006. "Variance-optimal hedging for processes with stationary independent increments," Papers math/0607112, arXiv.org.
- Figlewski, Stephen, 1989. " Options Arbitrage in Imperfect Markets," Journal of Finance, American Finance Association, vol. 44(5), pages 1289-1311, December.
- Flavio Angelini & Marco Nicolosi, 2010.
"On the Effect of Skewness and Kurtosis Misspecification on the Hedging Error,"
Banca Monte dei Paschi di Siena SpA, vol. 39(3), pages 203-226, November.
- Flavio Angelini & Marco Nicolosi, 2008. "Hedging error in Lévy models with a Fast Fourier Transform approach," Quaderni del Dipartimento di Economia, Finanza e Statistica 43/2008, Università di Perugia, Dipartimento Economia.
- Toft, Klaus Bjerre, 1996. "On the Mean-Variance Tradeoff in Option Replication with Transactions Costs," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 31(02), pages 233-263, June.
- Flavio Angelini & Stefano Herzel, 2007. "Measuring the error of dynamic hedging: a Laplace transform approach," Quaderni del Dipartimento di Economia, Finanza e Statistica 33/2007, Università di Perugia, Dipartimento Economia. Full references (including those not matched with items on IDEAS)