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European claim. This allows pricing and hedging under the minimal martingale measure, corresponding to the local risk …-minimizing strategy. Furthermore, since the mean-variance tradeoff process is deterministic in our setup, the minimal martingale- and … variance-optimal martingale measures coincide. Consequently, the mean-variance optimal strategy is easily constructed. Simple …
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A Parisian option is a variant of a barrier option such that its payment is activated or deactivated only if the underlying asset remains above or below a barrier over a certain amount of time. We show that its complex payoff feature can cause dynamic hedging to fail. As an alternative, we...
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