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http://hdl.handle.net/10419/65298
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| Title: | | Efficient hedging for a complete jump-diffusion model  |
| Authors: | | Kirch, Michael Krutchenko, R. N. Melnikov, Aleksandr V. |
| Issue Date: | | 2002 |
| Series/Report no.: | | Discussion Papers, Interdisciplinary Research Project 373: Quantification and Simulation of Economic Processes 2002,27 |
| Abstract: | | This paper is devoted to the problem of hedging contingent claims in the framework of a complete two-factor jump-diffusion model. In this context, it is well understood that every contingent claim can be hedged perfectly if one invests the unique arbitrage-free price. Based on the results of H. Föllmer and P. Leukert [4][ 5] in a general semimartingale setting, we determine the unique hedging strategies which minimize a suitably defined shortfall risk under a given cost constraint. We derive explicit formulas for this so-called efficient or quantile hedging strategy for a European call option. We then compare the performance of the optimal strategy for different degrees of the investor's risk-aversion. |
| Subjects: | | Efficient hedging Quantile Hedging jump-diffusion martingale Measure |
| JEL: | | G10 G12 G13 D81 |
| Persistent Identifier of the first edition: | | urn:nbn:de:kobv:11-10048859 |
| Document Type: | | Working Paper |
| Appears in Collections: | | Discussion Papers, SFB 373, HU Berlin
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