Dynamic complex hedging in additive markets

Jose Corcuera and Joao Guerra

Quantitative Finance, 2010, vol. 10, issue 9, 1023-1037

Abstract: In general, geometric additive models are incomplete and the perfect replication of derivatives, in the usual sense, is not possible. In this paper we complete the market by introducing the so-called power-jump assets. Using a static hedging formula, in order to relate call options and power-jump assets, we show that this market can also be completed by considering portfolios with a continuum of call options with different strikes and the same maturity.

Keywords: Incomplete markets; Mathematics of finance; Derivatives hedging; Insider trading; Exotic options; Levy process; Optimization; Portfolio optimization (search for similar items in EconPapers)
Date: 2010
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DOI: 10.1080/14697680902960234

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