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Efficient hedging for a complete jump-diffusion model
Kirch, Michael; Krutchenko, R. N.; Melʹnikov, Aleksandr V. - 2002
This paper is devoted to the problem of hedging contingent claims in the framework of a complete two-factor jump … determine the unique hedging strategies which minimize a suitably defined shortfall risk under a given cost constraint. We … derive explicit formulas for this so-called efficient or quantile hedging strategy for a European call option. We then …
Persistent link: https://www.econbiz.de/10009621417
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Model-Free Methods in Valuation and Hedging of Derivative Securities
Davis, Mark - 2015
In contrast to conventional model-based derivative pricing, a recent stream of research aims to investigate what prices are consistent with absence of arbitrage, given only the current prices of traded options on the same underlying. This paper gives a succinct survey of work in this area. After...
Persistent link: https://www.econbiz.de/10013024521
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Pricing and Hedging of Guaranteed Minimum Benefits Under Regime-Switching and Stochastic Mortality
Ignatieva, Katja - 2016
This paper presents a novel framework for pricing and hedging of the Guaranteed Minimum Benefits (GMBs) embedded in …-switching model. Semi-closed form solutions for prices of various GMBs are derived; pricing and hedging is performed using an accurate …, fast and efficient Fourier Space Time-stepping (FST) algorithm, which allows deriving the Greeks required for hedging …
Persistent link: https://www.econbiz.de/10012994274
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Mean-Variance Hedging and Optimal Investment in Heston's Model with Correlation
Černý, Aleš - 2020
This paper solves the mean-variance hedging problem in Heston's model with a stochastic opportunity set moving … derive formulas for the hedging strategy and the hedging error …
Persistent link: https://www.econbiz.de/10012705869
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An Orthogonal Series Expansions Method to Hedge and Price European-Type Options
Chan, Ron - 2017
Closed-form pricing formulae and option Greeks are obtained for European-type options using an orthogonal polynomial series -- complex Fourier series. We assume that risky assets are driven by exponential Lévy processes and stochastic volatility models. We provide a succinct error analysis to...
Persistent link: https://www.econbiz.de/10012967806
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A diffusion approximation to the Markov chains model of the financial market and the expected riskless profit under selling of call and put options /
Nagaev, Alexander V.; Nagaev, Sergei A.; Kunst, Robert M. - 2005
A discrete time model of financial markets is considered. It is assumed that the stock price evolution is described by a homogeneous Markov chain. In the focus of attention is the expected value of the guaranteed profit of the investor that arises when the jumps of the stock price are bounded....
Persistent link: https://www.econbiz.de/10009728973
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Conditional density models for asset pricing
Filipović, Damir; Hughston, Lane P.; Macrina, Andrea - 2010
We model the dynamics of asset prices and associated derivatives by consideration of the dynamics of the conditional probability density process for the value of an asset at some specified time in the future. In the case where the asset is driven by Brownian motion, an associated "master...
Persistent link: https://www.econbiz.de/10008797695
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A diffusion approximation for the riskless profit under selling of discrete time call options : non-identically distributed jumps
Nagaev, Alexander V.; Nagaev, Sergei A.; Kunst, Robert M. - 2005
A discrete time model of financial markets is considered. It is assumed that the relative jumps of the risky security price are independent non-identically distributed random variables. In the focus of attention is the expected non-risky profit of the investor that arises when the jumps of the...
Persistent link: https://www.econbiz.de/10009728974
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The term structure of the price of variance risk
Andries, Marianne; Eisenbach, Thomas M.; Schmalz, Martin C. - 2015
We estimate the term structure of the price of variance risk (PVR), which helps distinguish between competing asset-pricing theories. First, we measure the PVR as proportional to the Sharpe ratio of short-term holding returns of delta-neutral index straddles; second, we estimate the PVR in a...
Persistent link: https://www.econbiz.de/10011303715
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Black scholes for portfolios of options in discrete time : the price is right, the hedge is wrong
Peeters, Bas; Dert, Cees; Lucas, André - 2003
Taking a portfolio perspective on option pricing and hedging, we show that within the standard Black …) hedging the total risk of each option separately, the correct hedge portfolio in discrete time eliminates linear (delta) as … indefinitely. This ties the literature on option pricing and hedging closer together with the APT literature in its focus on …
Persistent link: https://www.econbiz.de/10011334345