In this paper the performance of locally risk-minimizing hedge strategies for European options in stochastic volatility models is studied from an experimental as well as from an empirical perspective. These hedge strategies are derived for a large class of diffusion-type stochastic volatility...

In the basic mean/variance framework, a stock's weight in effcient portfolios goes up if its expected rate of return goes up. In more complicated, realistic portfolio choice problems, surprising effects can occur.

We investigate how sensitive a variety of dynamic and static hedge strategies for barrier options are to model risk. We find that using plain vanilla options to hedge barrier options offers considerable improvements over usual ?-hedges. Further, we show that the hedge portfolios involving...

This paper provides an extension of the Black-Scholes model for option pricing in which the logarithm of the volatility is assumed to be generated from an Ornstein-Uhlenbeck equation with fractional Riesz-Bessel motion (fRBm) input. The solution of the resulting stochastic differential equation...

We report on progress on a Multistage Stochastic programming model for managing risks in the Danish MBS market. An issuer has the choice between adjustable and fixed rates, both types having various options. An integrated interest-rate and optimization model is needed to manage this complex...

In this paper locally risk-minimizing hedge strategies for European-style contingent claims are derived and tested for a general class of stochastic volatility models. These strategies are as easy to implement as ordinary delta hedges, yet in realistic settings they produce markedly lower hedge...

We review how reflection results can be used to give simple proofs of price formulas and derivations of static hedge portfolios for barrier and lookback options in the Black-Scholes model.