We analyze the errors arising from discrete readjustment of the hedging portfolio when hedging options in exponential Lévy models, and establish the rate at which the expected squared error goes to zero when the readjustment frequency increases. We compare the quadratic hedging strategy with...

An extensive literature examines the dynamics of interest rates, with particular attention given to the positive relationship between interest-rate volatility and the level of interest rates-the so-called level effect. This paper examines the interaction between the estimated level effect and...