Local risk-minimization for Barndorff-Nielsen and Shephard models

DOI10.1007/S00780-017-0324-8MaRDI QIDQ522068zbMATH OpenOpenAlexFDO

Authors Takuji Arai, Y. Imai, Ryoichi Suzuki

Publication date 13 April 2017

Published in Finance and Stochastics (Search for Journal in Brave)

Full work available at URL https://arxiv.org/abs/1503.08589

zbMATH Keywords

Malliavin calculusstochastic volatility modelslocal risk-minimizationBarndorff-Nielsen and Shephard modelsLévy processes

Mathematics Subject Classification ID

Processes with independent increments; Lévy processes (60G51) Derivative securities (option pricing, hedging, etc.) (91G20) Stochastic calculus of variations and the Malliavin calculus (60H07) Numerical methods (including Monte Carlo methods) (91G60)

Abstract: We obtain explicit representations of locally risk-minimizing strategies of call and put options for the Barndorff-Nielsen and Shephard models, which are Ornstein--Uhlenbeck-type stochastic volatility models. Using Malliavin calculus for Levy processes, Arai and Suzuki (2015) obtained a formula for locally risk-minimizing strategies for Levy markets under many additional conditions. Supposing mild conditions, we make sure that the Barndorff-Nielsen and Shephard models satisfy all the conditions imposed in Arai and Suzuki (2015). Among others, we investigate the Malliavin differentiability of the density of the minimal martingale measure. Moreover, some numerical experiments for locally risk-minimizing strategies are introduced.

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• Pricing and hedging Asian-style options on energy
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• Variance-Optimal Hedging in General Affine Stochastic Volatility Models

Cited in

(9)

• Pricing and hedging of VIX options for Barndorff-Nielsen and Shephard models
• Malliavin differentiability of indicator functions on canonical Lévy spaces
• Approximate option pricing formula for Barndorff-Nielsen and Shephard model
• Numerical analysis on local risk-minimization for exponential Lévy models
• Local risk-minimization for Barndorff-Nielsen and Shephard models with volatility risk premium
• Hedging strategy for unit-linked life insurance contracts with self-exciting jump clustering
• Local risk-minimization under the benchmark approach
• A Girsanov transformed Clark-Ocone-Haussmann type formula for \(L^1\)-pure jump additive processes and its application to portfolio optimization
• Comparison of local risk minimization and delta hedging strategy for exponential Lévy models

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