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Atribución-NoComercial-SinDerivadas 3.0 España
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)
resultinTraditional 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[+][-]