Variance-Minimizing Hedging in a Model with Jumps at Deterministic Times

We consider a model in which the asset price is driven by the Wiener process and, in addition, has random changes at earlier known nonrandom time moments. The explicit form of the variance-minimizing hedging strategy for the European call option is derived. The results are based on the Föllmer-Schwe...

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Bibliographic Details
Published inTheory of probability and its applications Vol. 51; no. 3; pp. 536 - 545
Main Author Radchenko, V. M.
Format Journal Article
LanguageEnglish
Published Philadelphia Society for Industrial and Applied Mathematics 01.01.2007
Subjects
Decomposition
Hedging
Random variables
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Summary:We consider a model in which the asset price is driven by the Wiener process and, in addition, has random changes at earlier known nonrandom time moments. The explicit form of the variance-minimizing hedging strategy for the European call option is derived. The results are based on the Föllmer-Schweizer decomposition of contingent claims.
ISSN:0040-585X
1095-7219
DOI:10.1137/S0040585X97982578