Dynamic complex hedging in additive markets

In general, geometric additive models are incomplete and the perfect replication of derivatives, in the usual sense, is not possible. In this paper we complete the market by introducing the so-called power-jump assets. Using a static hedging formula, in order to relate call options and power-jump assets, we show that this market can also be completed by considering portfolios with a continuum of call options with different strikes and the same maturity.

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Year of publication:	2010
Authors:	Corcuera, Jose ; Guerra, Joao
Published in:	Quantitative Finance. - Taylor & Francis Journals, ISSN 1469-7688. - Vol. 10.2010, 9, p. 1023-1037
Publisher:	Taylor & Francis Journals
Subject:	Incomplete markets \| Mathematics of finance \| Derivatives hedging \| Insider trading \| Exotic options \| Levy process \| Optimization \| Portfolio optimization

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Extent:	text/html
Type of publication:	Article
Source:	RePEc - Research Papers in Economics

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