Stochastic Volatility: Risk Minimization and Model Risk
In this paper locally risk-minimizing hedge strategies for European-style contingent claims are derived and tested for a general class of stochastic volatility models. These strategies are as easy to implement as ordinary delta hedges, yet in realistic settings they produce markedly lower hedge errors. Our experimental investigations on model risk furthermore show that locally risk-minimizing hedges are robust with respect to parameter uncertainty as well as misspecifications of the stochastic volatility model.
|Date of creation:||Feb 2007|
|Contact details of provider:|| Web page: http://www.SwissFinanceInstitute.ch|
More information through EDIRC
When requesting a correction, please mention this item's handle: RePEc:chf:rpseri:rp0710. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Marilyn Barja)
If references are entirely missing, you can add them using this form.