Hedging a Portfolio of Derivative Securities: A Simulation Approach
type="main" xml:lang="en"> <p>We illustrate a numerical simulation method to decompose a portfolio of derivative securities in a linear combination of dynamical risk factors. The price of the portfolio and its sensitivities are linear functions of these factors. <p>The method generalizes the static hedging theory proposed by Madan and Milne (1994) and applies to a dynamically complete, arbitrage free market with purely Brownian fluctuating assets. The extension to a class of market models whose volatility dynamics shows long memory and scaling behaviour is discussed and shown to be possible.
(J.E.L.: G12).
Year of publication: |
2001
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Authors: | Tebaldi, Claudio |
Published in: |
Economic Notes. - Banca Monte dei Paschi di Siena SpA. - Vol. 30.2001, 2, p. 257-279
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Publisher: |
Banca Monte dei Paschi di Siena SpA |
Saved in:
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