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

N. Josephy, L. Kimball and V. Steblovskaya

International Journal of Stochastic Analysis, 2008, vol. 2008, 1-20

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.

Date: 2008
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Persistent link: https://EconPapers.repec.org/RePEc:hin:jnijsa:275217

DOI: 10.1155/2008/275217

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