Delta Hedging in Financial Engineering: Towards a Model-Free Approach

Michel Fliess and Cédric Join ()
Additional contact information
Michel Fliess: ALIEN - Algebra for Digital Identification and Estimation - Inria Lille - Nord Europe - Inria - Institut National de Recherche en Informatique et en Automatique - Inria Saclay - Ile de France - Inria - Institut National de Recherche en Informatique et en Automatique - Centrale Lille - X - École polytechnique - IP Paris - Institut Polytechnique de Paris - CNRS - Centre National de la Recherche Scientifique, LIX - Laboratoire d'informatique de l'École polytechnique [Palaiseau] - X - École polytechnique - IP Paris - Institut Polytechnique de Paris - CNRS - Centre National de la Recherche Scientifique
Cédric Join: ALIEN - Algebra for Digital Identification and Estimation - Inria Lille - Nord Europe - Inria - Institut National de Recherche en Informatique et en Automatique - Inria Saclay - Ile de France - Inria - Institut National de Recherche en Informatique et en Automatique - Centrale Lille - X - École polytechnique - IP Paris - Institut Polytechnique de Paris - CNRS - Centre National de la Recherche Scientifique, CRAN - Centre de Recherche en Automatique de Nancy - UHP - Université Henri Poincaré - Nancy 1 - INPL - Institut National Polytechnique de Lorraine - CNRS - Centre National de la Recherche Scientifique

Post-Print from HAL

Abstract: Delta hedging, which plays a crucial rôle in modern financial engineering, is a tracking control design for a "risk-free" management. We utilize the existence of trends in financial time series (Fliess M., Join C.: A mathematical proof of the existence of trends in financial time series, Proc. Int. Conf. Systems Theory: Modelling, Analysis and Control, Fes, 2009. Online: http://hal.inria.fr/inria-00352834/en/) in order to propose a model-free setting for delta hedging. It avoids most of the shortcomings encountered with the now classic Black-Scholes-Merton framework. Several convincing computer simulations are presented. Some of them are dealing with abrupt changes, i.e., jumps.

Keywords: Financial engineering; delta hedging; dynamic hedging; trends; quick fluctuations; abrupt changes; jumps; tracking control; model-free control (search for similar items in EconPapers)
Date: 2010-06-23
Note: View the original document on HAL open archive server: https://inria.hal.science/inria-00479824
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

Published in 18th Mediterranean Conference on Control and Automation, MED'10, Jun 2010, Marrakech, Morocco. pp.CDROM

Downloads: (external link)
https://inria.hal.science/inria-00479824/document (application/pdf)

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:hal:journl:inria-00479824

Access Statistics for this paper

More papers in Post-Print from HAL
Bibliographic data for series maintained by CCSD ().