Variance optimal hedging for continuous time additive processes and applications

DOI10.1080/17442508.2013.774402zbMATH Open1306.60047arXiv1302.1965OpenAlexW2074269207MaRDI QIDQ2875261FDOQ2875261

Authors: Stéphane Goutte, Nadia Oudjane, Francesco Russo 

Publication date: 14 August 2014

Published in: Stochastics (Search for Journal in Brave)

Abstract: For a large class of vanilla contingent claims, we establish an explicit F"ollmer-Schweizer decomposition when the underlying is an exponential of an additive process. This allows to provide an efficient algorithm for solving the mean variance hedging problem. Applications to models derived from the electricity market are performed.

Full work available at URL: https://arxiv.org/abs/1302.1965

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zbMATH Keywords

variance-optimal hedgingelectricity marketsadditive processesLévy processesFöllmer-Schweizer decomposition

Mathematics Subject Classification ID

Processes with independent increments; Lévy processes (60G51) Portfolio theory (91G10) Continuous-time Markov processes on general state spaces (60J25) Stochastic integrals (60H05) Financial applications of other theories (91G80)

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Cited In (14)

• Normal Tempered Stable Processes and the Pricing of Energy Derivatives
• Variance-optimal hedging for processes with stationary independent increments
• Pricing and hedging Asian-style options on energy
• Variance-Optimal Hedging in Discrete Time
• BSDEs, càdlàg martingale problems, and orthogonalization under basis risk
• Properties of optimal smooth functions in additive models for hedging multivariate derivatives
• Title not available (Why is that?)
• On some expectation and derivative operators related to integral representations of random variables with respect to a PII process
• The Föllmer-Schweizer decomposition: comparison and description
• The use of BSDEs to characterize the mean-variance hedging problem and the variance optimal martingale measure for defaultable claims
• Non-parametric pricing and hedging of exotic derivatives
• A numerically efficient closed-form representation of mean-variance hedging for exponential additive processes based on Malliavin calculus
• A structural risk-neutral model for pricing and hedging power derivatives
• Exact simulation of normal tempered stable processes of OU type with applications

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