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Discrete-Time Quadratic Hedging of Barrier Options in Exponential Lévy Model

Černý, A. (2016). Discrete-Time Quadratic Hedging of Barrier Options in Exponential Lévy Model. In: Kallsen, J and Papapantoleon, A (Eds.), UNSPECIFIED (pp. 257-275). Springer. ISBN 3319458736

Abstract

We examine optimal quadratic hedging of barrier options in a discretely sampled exponential Lévy model that has been realistically calibrated to reflect the leptokurtic nature of equity returns. Our main finding is that the impact of hedging errors on prices is several times higher than the impact of other pricing biases studied in the literature.

Publication Type: Conference or Workshop Item (Paper)
Publisher Keywords: Barrier option, Quadratic hedging, Lévy model
Subjects: H Social Sciences > HG Finance
Departments: Cass Business School > Finance
URI: http://openaccess.city.ac.uk/id/eprint/17024
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