A Time-Series Approach to Non-Self-Financing Hedging in a Discrete-Time Incomplete Market

Author:

Josephy N.1,Kimball L.1,Steblovskaya V.1

Affiliation:

1. Department of Mathematical Sciences, Bentley College, 175 Forest Street, Waltham, MA 02452-4705, USA

Abstract

We present an algorithm producing a dynamic non-self-financing hedging strategy in an incomplete market corresponding to investor-relevant risk criterion. The optimization is a two-stage process that first determines market calibrated model parameters that correspond to the market price of the option being hedged. In the second stage, an optimal set of model parameters is chosen from the market calibrated set. This choice is based on stock price simulations using a time-series model for stock price jump evolution. Results are presented for options traded on the New York Stock Exchange.

Funder

Bentley Fund for Strategic Research

Publisher

Hindawi Limited

Subject

Applied Mathematics,Modeling and Simulation,Statistics and Probability

Cited by 3 articles. 订阅此论文施引文献 订阅此论文施引文献,注册后可以免费订阅5篇论文的施引文献,订阅后可以查看论文全部施引文献

1. ON THE NUMERICAL ASPECTS OF OPTIMAL OPTION HEDGING WITH TRANSACTION COSTS;International Journal of Theoretical and Applied Finance;2017-02

2. Optimal hedging in an extended binomial market under transaction costs;Quantitative Finance;2015-08-06

3. Alternative hedging in a discrete-time incomplete market;The Journal of Risk;2013-09

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