NDLI: Explicit formulas for the minimal variance hedging strategy in a martingale case

Content Provider	Springer Nature Link
Author	Angelini, Flavio Herzel, Stefa
Copyright Year	2009
Abstract	We explicitly compute closed formulas for the minimal variance hedging strategy in discrete time of a European option and for the variance of the corresponding hedging error under the hypothesis that the underlying asset is a martingale following a geometric Brownian motion. The formulas are easy to implement, hence the optimal hedge ratio can be employed as a valid substitute of the standard Black–Scholes delta, and the knowledge of the variance of the total error can be a useful tool for measuring and managing the hedging risk.
Starting Page	63
Ending Page	79
Page Count	17
File Format	PDF
ISSN	15938883
Journal	Decisions in Economics and Finance
Volume Number	33
Issue Number	1
e-ISSN	11296569
Language	English
Publisher	Springer Milan
Publisher Date	2009-10-02
Publisher Place	Milan
Access Restriction	One Nation One Subscription (ONOS)
Subject Keyword	Incomplete markets Hedging Contingent claim Variance-optimal hedging Operations Research/Decision Theory Management/Business for Professionals Finance /Banking Public Finance & Economics Econometrics Economic Theory
Content Type	Text
Resource Type	Article
Subject	Finance

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Explicit formulas for the minimal variance hedging strategy in a martingale case