This paper provides a theoretical and numerical analysis of robust hedging strategies in diffusion?type models … including stochastic volatility models. A robust hedging strategy avoids any losses as long as the realised volatility stays …

option hedging errors. We derive a closed-form solution for the option hedging error and its expecta- tion in a stochastic …, the expected hedging error cannot identify the exact structure of the compensation for jump risk. Furthermore, we derive … closed form solutions for the expected option hedging error under discrete trading and model mis-specification. Compared to …

It is well-known that Gaussian hedging strategies are robust in the sense that they always lead to a cost process of … hedging instruments from a given set of traded assets, in particular of zero coupon bonds, is studied. Misspecified hedging …

in discrete time. Therefore, the hedging bias which originates from the effects of time-discretising strategies is … analysed. It turns out that a systematic hedging bias can only be avoided if a discrete-time hedging model is used. It is shown … how the robustness property for convex payoffs is recovered while at the same time the hedging bias is avoided. …

This paper applies to the static hedge of barrier options a technique, mean-square hedging, designed to minimize the … size of the hedging error when perfect replication is not possible. It introduces an extension of this technique which … preserves the computational efficiency of mean-square hedging while being consistent with any prior pricing model or with any …

Taking a portfolio perspective on option pricing and hedging, we show that within the standard Black …) hedging the total risk of each option separately, the correct hedge portfolio in discrete time eliminates linear (delta) as … indefinitely. This ties the literature on option pricing and hedging closer together with the APT literature in its focus on …