|
Archivo Abierto Institucional de la Universidad Carlos III de Madrid >
Investigación >
Departamentos >
Departamento de Economía de la Empresa >
DEE - Otros documentos >
Please use this identifier to cite or link to this item:
http://hdl.handle.net/10016/12152
|
| Title: | Dynamic hedging of financial instruments when the underlying follows a non-Gaussian process |
| Author(s): | Cartea, Álvaro [acartea] |
| Publisher: | Birkbeck, University of London, School of Economics, Mathematics and Statistics |
| Issued date: | 25-May-2005 |
| URI: | http://hdl.handle.net/10016/12152 |
| ISSN: | 1745-8587 |
| Abstract: | Traditional dynamic hedging strategies are based on local information (ie Delta and Gamma) of the financial instruments to be hedged. We propose a new dynamic hedging strategy that employs non-local information and compare the profit and loss (P&L) resulting from hedging vanilla options when the classical approach of Delta- and Gammaneutrality is employed, to the results delivered by what we label Delta- and Fractional- Gamma-hedging. For specific cases, such as the FMLS of Carr and Wu (2003a) and Merton’s Jump-Diffusion model, the volatility of the P&L is considerably lower (in some cases only 25%) than that resulting from Delta- and Gamma-neutrality |
| Sponsor: | This work has been supported by the Nuffield Foundation |
| Serie / Nº.: | Birkbeck Workings Papers in Economics & Finance
0508 |
| Appears in Collections: | Economists Online
DEE - Otros documentos
|
This item is licensed under a Creative Commons License
Items in E-Archivo are protected by copyright, with all rights reserved, unless otherwise indicated.
|
