The Great Recession endured by the main industrialized countries during the period 2008–2009, in the wake of the financial and banking crisis, has pointed out the major role of the financial sector on macroeconomic fluctuations. In this respect, many researchers have started to reconsider the...

We apply a quadratic hedging scheme developed by Föllmer, Schweizer, and Sondermann to European contingent products whose underlying asset is modeled using a GARCH process and show that local risk-minimizing strategies with respect to the physical measure do exist, even though an associated...

We propose different schemes for option hedging when asset returns are modeled using a general class of GARCH models. More specifically, we implement local risk minimization and a minimum variance hedge approximation based on an extended Girsanov principle that generalizes Duan׳s (1995) delta...

The estimation of multivariate GARCH time series models is a difficult task mainly due to the excessive parametrization exhibited by the problem, usually referred to as the “curse of dimensionality”. For the VEC family, the number of parameters involved in the model grows as a polynomial of...