Showing 1 - 10 of 434
We measure, in terms of expectation and variance, the cost of hedging a contingent claim when the hedging portfolio is re-balanced at a discrete set of dates. The basic point of the methodology is to have an integral representation of the payoff of the claim, in other words to be able to write...
Persistent link: https://www.econbiz.de/10005003402
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...
Persistent link: https://www.econbiz.de/10010292791
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...
Persistent link: https://www.econbiz.de/10009725021
In this paper we derive the locally risk-minimizing hedging for a general contingent claim in an incomplete market via the generalized Clark-Ocone formula. Using this result in a stochastic volatility model, we study its connection with the hedge obtained via PDE approach. We see these hedging...
Persistent link: https://www.econbiz.de/10013134720
We use Malliavin calculus and the Clark-Ocone formula to derive the hedging strategy of an arithmetic Asian Call option in general terms. Furthermore we derive an expression for the density of the integral over time of a geometric Brownian motion, which allows us to express hedging strategy and...
Persistent link: https://www.econbiz.de/10013095807
Theoretical models applied to option pricing should take into account the empirical characteristics of the underlying financial time series. In this paper, we show how to price basket options when assets follow a shifted log-normal process with jumps capable of accommodating negative skewness....
Persistent link: https://www.econbiz.de/10013061752
This paper presents a novel framework for pricing and hedging of the Guaranteed Minimum Benefits (GMBs) embedded in variable annuities (VA) contracts whose underlying mutual fund dynamics evolve under the influence of the regime-switching model. Semi-closed form solutions for prices of various...
Persistent link: https://www.econbiz.de/10012994274
We construct a binomial model for a guaranteed minimum withdrawal benefit (GMWB) rider to a variable annuity (VA) under optimal policyholder behaviour. The binomial model results in explicitly formulated perfect hedging strategies funded using only periodic fee income. We consider the separate...
Persistent link: https://www.econbiz.de/10013005740
In this paper we consider the problem of hedging an arithmetic Asian option with discrete monitoring in an exponential Lévy model by deriving backward recursive integrals for the price sensitivities of the option. The procedure is applied to the analysis of the performance of the delta and...
Persistent link: https://www.econbiz.de/10012905619
We develop scenario-based stochastic programming models for hedging the risks of international portfolios using options. The models provide an increasing level of integration in managing market and foreign exchange (FX) risks. We start with a single-stage model with currency options for...
Persistent link: https://www.econbiz.de/10012924570