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Hedging Conditional Value at Risk with Options

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  • Maciej J. Capi'nski

Abstract

We present a method of hedging Conditional Value at Risk of a position in stock using put options. The result leads to a linear programming problem that can be solved to optimise risk hedging.

Suggested Citation

  • Maciej J. Capi'nski, 2014. "Hedging Conditional Value at Risk with Options," Papers 1408.6673, arXiv.org, revised Apr 2015.
    • Handle: RePEc:arx:papers:1408.6673
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    References listed on IDEAS

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    1. Hans FÃllmer & Peter Leukert, 2000. "Efficient hedging: Cost versus shortfall risk," Finance and Stochastics, Springer, vol. 4(2), pages 117-146.
    2. Acerbi, Carlo & Tasche, Dirk, 2002. "On the coherence of expected shortfall," Journal of Banking & Finance, Elsevier, vol. 26(7), pages 1487-1503, July.
    3. Philippe Artzner & Freddy Delbaen & Jean‐Marc Eber & David Heath, 1999. "Coherent Measures of Risk," Mathematical Finance, Wiley Blackwell, vol. 9(3), pages 203-228, July.
    4. Melnikov, Alexander & Smirnov, Ivan, 2012. "Dynamic hedging of conditional value-at-risk," Insurance: Mathematics and Economics, Elsevier, vol. 51(1), pages 182-190.
    5. Rockafellar, R. Tyrrell & Uryasev, Stanislav, 2002. "Conditional value-at-risk for general loss distributions," Journal of Banking & Finance, Elsevier, vol. 26(7), pages 1443-1471, July.
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