Option valuation and hedging using an asymmetric risk function: asymptotic optimality through fully nonlinear partial differential equations (Q784734): Difference between revisions
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Revision as of 21:42, 19 March 2024
scientific article
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English | Option valuation and hedging using an asymmetric risk function: asymptotic optimality through fully nonlinear partial differential equations |
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Option valuation and hedging using an asymmetric risk function: asymptotic optimality through fully nonlinear partial differential equations (English)
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3 August 2020
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The authors consider the valuation/hedging policies minimising the residual tracking error in discrete-time hedging. They evaluate the risk between trading dates through a function penalising profits and losses asymmetrically. After deriving the asymptotics from a discrete-time risk measurement for a large number of trading dates, they derive the optimal strategies minimising the asymptotic risk in a continuous-time setting. They characterise optimality through a class of fully nonlinear partial differential equations. Numerical experiments show that the optimal strategies associated with the discrete and the asymptotic approaches coincide asymptotically.
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hedging
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asymmetric risk
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fully nonlinear parabolic PDE
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regression Monte Carlo
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