Optimal discrete hedging in the Heston Stochastic Volatility Model

Toby Daglish and Christopher Neely

No 19108, Working Paper Series from Victoria University of Wellington, The New Zealand Institute for the Study of Competition and Regulation

Abstract: We present a closed form solution for the optimal hedging strategy in discrete time of an option whose underlying security follows the Heston Stochastic Volatility process. Our Monte Carlo simulations indicate that this significantly improves hedging performance at weekly and longer hedging intervals when compared to continuous time hedging procedures.

Date: 2008
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Persistent link: https://EconPapers.repec.org/RePEc:vuw:vuwcsr:19108

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