WIENER CHAOS: A NEW APPROACH TO OPTION HEDGING

Vincent Lacoste

Mathematical Finance, 1996, vol. 6, issue 2, 197-213

Abstract: This paper addresses the problem of estimating and analyzing the residual risk that is not hedged by a discrete hedging strategy. the use of die chaotic representation allows an elegant decomposition of the residual risk to be hedged by adequate assets. Alternative strategies to the classical delta hedging and optimization under the risk‐neutral and historical probabilities are discussed.

Date: 1996
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