Hedging Derivatives

Thorsten Rheinländer and Jenny Sexton
Additional contact information
Thorsten Rheinländer: London School of Economics and Political Science, UK
Jenny Sexton: University of Manchester, UK

in World Scientific Books from World Scientific Publishing Co. Pte. Ltd.

Abstract: Valuation and hedging of financial derivatives are intrinsically linked concepts. Choosing appropriate hedging techniques depends on both the type of derivative and assumptions placed on the underlying stochastic process. This volume provides a systematic treatment of hedging in incomplete markets. Mean-variance hedging under the risk-neutral measure is applied in the framework of exponential Lévy processes and for derivatives written on defaultable assets. It is discussed how to complete markets based upon stochastic volatility models via trading in both stocks and vanilla options. Exponential utility indifference pricing is explored via a duality with entropy minimization. Backward stochastic differential equations offer an alternative approach and are moreover applied to study markets with trading constraints including basis risk. A range of optimal martingale measures are discussed including the entropy, Esscher and minimal martingale measures. Quasi-symmetry properties of stochastic processes are deployed in the semi-static hedging of barrier options.

Keywords: Hedging; Financial Derivatives; Martingale Measures; Incomplete Markets; Stochastic Volatility; Lévy Processes (search for similar items in EconPapers)
Date: 2011
ISBN: 9789814338790
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Chapters in this book:

Ch 1 Introduction , pp 1-10

Thorsten Rheinländer and Jenny Sexton

Ch 2 Stochastic Calculus , pp 11-34

Thorsten Rheinländer and Jenny Sexton

Ch 3 Arbitrage and Completeness , pp 35-55

Thorsten Rheinländer and Jenny Sexton

Ch 4 Asset Price Models , pp 57-83

Thorsten Rheinländer and Jenny Sexton

Ch 5 Static Hedging , pp 85-101

Thorsten Rheinländer and Jenny Sexton

Ch 6 Mean-Variance Hedging , pp 103-131

Thorsten Rheinländer and Jenny Sexton

Ch 7 Entropic Valuation and Hedging , pp 133-159

Thorsten Rheinländer and Jenny Sexton

Ch 8 Hedging Constraints , pp 161-193

Thorsten Rheinländer and Jenny Sexton

Ch 9 Optimal Martingale Measures , pp 195-218

Thorsten Rheinländer and Jenny Sexton

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