Efficient hedging in general Black-Scholes model

Kyong-Hui Kim and Myong-Guk Sin

Papers from arXiv.org

Abstract: An investor faced with a contingent claim may eliminate risk by perfect hedging, but as it is often quite expensive, he seeks partial hedging (quantile hedging or efficient hedging) that requires less capital and reduces the risk. Efficient hedging for European call option was considered in the standard Black-Scholes model with constant drift and volatility coefficients. In this paper we considered the efficient hedging for European call option in general Black-Scholes model $dX_t=X_t(m(t)dt+\sigma (t)dw(t))$ with time-varying drift and volatility coefficients and in fractional Black-Scholes model $dX_t=X_t(\sigma B_H(t)+mdt)$ with constant coefficients.

Date: 2013-08, Revised 2014-03
New Economics Papers: this item is included in nep-rmg
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