Optimal static quadratic hedging

DOI10.1080/14697688.2016.1161229MaRDI QIDQ4554507zbMATH OpenOpenAlexFDO

Authors Tim Leung, Matthew Lorig

Publication date 14 November 2018

Published in Quantitative Finance (Search for Journal in Brave)

Full work available at URL https://arxiv.org/abs/1506.02074

zbMATH Keywords

leveraged ETF optionsstatic hedgingsubstitute hedging

Mathematics Subject Classification ID

Derivative securities (option pricing, hedging, etc.) (91G20)

Abstract: We propose a flexible framework for hedging a contingent claim by holding static positions in vanilla European calls, puts, bonds, and forwards. A model-free expression is derived for the optimal static hedging strategy that minimizes the expected squared hedging error subject to a cost constraint. The optimal hedge involves computing a number of expectations that reflect the dependence among the contingent claim and the hedging assets. We provide a general method for approximating these expectations analytically in a general Markov diffusion market. To illustrate the versatility of our approach, we present several numerical examples, including hedging path-dependent options and options written on a correlated asset.

Recommendations

• Semistatic and sparse variance-optimal hedging
• OPTIMAL STATIC–DYNAMIC HEDGES FOR BARRIER OPTIONS
• Static and semistatic hedging as contrarian or conformist bets
• Static hedging under maturity mismatch
• Static hedging of multivariate derivatives by simulation

Cites work

• A closed-form solution for options with stochastic volatility with applications to bond and currency options
• Analytical expansions for parabolic equations
• Explicit implied volatilities for multifactor local-stochastic volatility models
• Exponential Hedging with Optimal Stopping and Application to Employee Stock Option Valuation
• scientific article; zbMATH DE number 1807400 (Why is no real title available?)
• scientific article; zbMATH DE number 1869272 (Why is no real title available?)
• scientific article; zbMATH DE number 2107836 (Why is no real title available?)
• Implied volatility of leveraged ETF options
• Leveraged ETF implied volatilities from ETF dynamics
• OPTIMAL STATIC–DYNAMIC HEDGES FOR BARRIER OPTIONS
• Options on realized variance by transform methods: a non-affine stochastic volatility model
• Path-dependence of leveraged ETF returns
• Put-call symmetry: extensions and applications
• Static Hedging of Barrier Options with a Smile: An Inverse Problem
• Static hedging under time-homogeneous diffusions
• Static-arbitrage upper bounds for the prices of basket options

Cited in

(34)

• It only takes a few moments to hedge options
• Quantile hedging in a semi-static market with model uncertainty
• Static hedging of multivariate derivatives by simulation
• A profitable modification to global quadratic hedging
• Static hedging of weather and price risks in electricity markets
• Hedging derivatives on two assets with model risk
• Static hedging with uncertain quantity and departure from the cost-of-carry valuation
• Quadratic hedging methods for defaultable claims
• Almost sure optimal hedging strategy
• An optimal multi-step quadratic risk-adjusted hedging strategy
• Static hedging under maturity mismatch
• A class of quadratic options for exchange rate stabilization
• Quadratic hedging for sequential claims with random weights in discrete time
• On the utility maximization of the discrepancy between a perceived and market implied risk neutral distribution
• The modified sequential hedging strategy: hedger's loss distribution
• Optimal weak static hedging of equity and credit risk using derivatives
• UTILITY INDIFFERENCE PRICING OF INTEREST-RATE GUARANTEES
• On Quadratic Cost Criteria for Option Hedging
• Properties of optimal smooth functions in additive models for hedging multivariate derivatives
• Hedging Index Options With Few Assets¹
• scientific article; zbMATH DE number 2014387 (Why is no real title available?)
• Performance of utility-based strategies for hedging basis risk
• Quadratic Hedging with Mixed State and Control Constraints
• Quadratic-Variation-Based Dynamic Strategies
• Convergence analysis and optimal strike choice for static hedges of general path-independent pay-offs
• Semi-robust replication of barrier-style claims on price and volatility
• Semistatic and sparse variance-optimal hedging
• OPTIMAL STATIC–DYNAMIC HEDGES FOR BARRIER OPTIONS
• Static and semistatic hedging as contrarian or conformist bets
• Robust replication of volatility and hybrid derivatives on jump diffusions
• Hedging at-the-money digital options near maturity
• Optimal Execution with Quadratic Variation Inventories
• Optimal positioning in derivative securities in incomplete markets
• Optimal static-dynamic hedges for exotic options under convex risk measures

This page was built for publication: Optimal static quadratic hedging

Report a bug (only for logged in users!)Click here to report a bug for this page (MaRDI item Q4554507)