An optimal multi-step quadratic risk-adjusted hedging strategy

Shih Feng Huang, Meihui Guo

研究成果: 雜誌貢獻期刊論文同行評審

摘要

An optimal multi-step hedging strategy is proposed to minimize one's exposure to risk. The proposed strategy, called the QRA-hedging, is based on the minimization of the quadratic risk-adjusted hedging costs and extends the result of Elliott and Madan (1998) to the multi-step case. The multi-step QRA-hedging cost is proved to be the same as the no-arbitrage price derived by the extended Girsanov principle. The QRA-hedging strategy is investigated under complete and incomplete market models. A regression-based method is proposed to estimate the QRA-hedging positions. And a dynamic programming is developed to facilitate computation of the QRA-hedging strategy. Simulation and empirical studies are performed to compare the QRA with other hedging strategies under complete and incomplete market models.

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頁(從 - 到)37-49
頁數13
期刊Journal of the Korean Statistical Society
42
發行號1
DOIs
出版狀態已出版 - 3月 2013

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