This paper presents a new methodology for hedging long-term financial derivatives written on an illiquid asset. The proposed hedging strategy combines dynamic trading of a correlated liquid asset (e.g. the market index) and static positions in market-traded options such as European puts and...

We propose a flexible framework for hedging a contingent claim by holding static positions in vanilla European calls, puts, bonds, and forwards. A model-free expression is derived for the optimal static hedging strategy that minimizes the expected squared hedging error subject to a cost...

We study the problem of dynamically trading multiple futures contracts with different underlying assets. To capture the joint dynamics of stochastic bases for all traded futures, we propose a new model involving a multi-dimensional scaled Brownian bridge that is stopped before price convergence....