DISCRETE-TIME VARIANCE-OPTIMAL HEDGING IN AFFINE STOCHASTIC VOLATILITY MODELS

Jan Kallsen, Johannes Muhle-Karbe, Natalia Shenkman and Richard Vierthauer
Additional contact information
Jan Kallsen: Mathematisches Seminar, Christian-Albrechts-Universität zu Kiel, Christian-Albrechts Platz 4, 24098 Kiel, Germany
Johannes Muhle-Karbe: Fakultät für Mathematik, Universität Wien, Austria Nordbergstr. 15, 1090 Wien, Austria
Natalia Shenkman: Lehrstuhl für Energiehandel und Finanzdienstleistungen, Universität Duisburg-Essen, Universitätsstraße 12, 45141 Essen, Germany
Richard Vierthauer: Mathematisches Seminar, Christian-Albrechts-Universität zu Kiel, Christian-Albrechts Platz 4, 24098 Kiel, Germany

Chapter 15 in Alternative Investments and Strategies, 2010, pp 375-393 from World Scientific Publishing Co. Pte. Ltd.

Abstract: AbstractWe consider variance-optimal hedging when trading is restricted to a finite time set. Using Laplace transform methods, we derive semi-explicit formulas for the variance-optimal initial capital and hedging strategy in affine stochastic volatility models. For the corresponding minimal expected-squared hedging error, we propose a closed-form approximation as well as a simulation approach. The results are illustrated by computing the relevant quantities in a time-changed Lévy model.

Keywords: Alternative Investments; Portfolio Selection; Trading Strategy; Product Innovations; CPPI; Portfolio Optimization; Portfolio Insurance (search for similar items in EconPapers)
Date: 2010
References: Add references at CitEc
Citations: View citations in EconPapers (2)

Downloads: (external link)
https://www.worldscientific.com/doi/pdf/10.1142/9789814280112_0015 (application/pdf)
https://www.worldscientific.com/doi/abs/10.1142/9789814280112_0015 (text/html)
Ebook Access is available upon purchase.

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:wsi:wschap:9789814280112_0015

Ordering information: This item can be ordered from

Access Statistics for this chapter

More chapters in World Scientific Book Chapters from World Scientific Publishing Co. Pte. Ltd.
Bibliographic data for series maintained by Tai Tone Lim ().