Discrete-time quadratic hedging of barrier options in exponential Lévy model

DOI10.1007/978-3-319-45875-5_12MaRDI QIDQ4976503zbMATH OpenOpenAlexFDO

Authors Aleš Černý

Publication date 31 July 2017

Published in Springer Proceedings in Mathematics & Statistics (Search for Journal in Brave)

Full work available at URL https://arxiv.org/abs/1603.03747, https://openaccess.city.ac.uk/id/eprint/17024/1/SSRN-id2746572.pdf

zbMATH Keywords

barrier optionquadratic hedgingLévy model

Mathematics Subject Classification ID

Processes with independent increments; Lévy processes (60G51) Derivative securities (option pricing, hedging, etc.) (91G20)

Abstract: We examine optimal quadratic hedging of barrier options in a discretely sampled exponential L'{e}vy model that has been realistically calibrated to reflect the leptokurtic nature of equity returns. Our main finding is that the impact of hedging errors on prices is several times higher than the impact of other pricing biases studied in the literature.

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Cited in

(5)

• Hedging strategies for discretely monitored Asian options under Lévy processes
• OPTIMAL CONTINUOUS‐TIME HEDGING WITH LEPTOKURTIC RETURNS
• On the performance of delta hedging strategies in exponential Lévy models
• Robust barrier option pricing by frame projection under exponential Lévy dynamics
• Tracking errors from discrete hedging in exponential Lévy models

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