We use mean-variance hedging in discrete time, in order to value a terminal insurance liability. The prediction of the liability is decomposed into claims development results, that is, yearly deteriorations in its conditional expected value. We assume the existence of a tradeable derivative with...

We examine optimal quadratic hedging of barrier options in a discretely sampled exponential Lévy model that has been realistically calibrated to reflect the leptokurtic nature of equity returns. Our main finding is that the impact of hedging errors on prices is several times higher than the...