Key Features:Unique focus on hedging and optimal martingale measuresIncludes new developments about static and dynamic … hedging schemesTreatment of popular models for asset prices like exponential Lévy processes and stochastic volatility models. …Intro -- Contents -- Preface -- 1. Introduction -- 1.1 Hedging in complete markets -- 1.1.1 Black & Scholes analysis …

In this paper we propose a maximum entropy estimator for the asymptotic distribution of the hedging error for options … shortfall of the hedging error. The significance of this approach lies in the fact that the maximum entropy estimator allows us …. Perfect replication of financial derivatives is not possible, due to market incompleteness and discrete-time hedging. We …

European claim. This allows pricing and hedging under the minimal martingale measure, corresponding to the local risk … pricing and hedging formulae for put and call options are derived in terms of the Black–Scholes formula. Due to market … an approximate hedging formula, which does not require knowledge of these parameters. The hedging strategies are tested …