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来源类型Discussion paper
规范类型论文
来源IDDP8402
DP8402 Dynamic Hedging in Incomplete Markets: A Simple Solution
Suleyman Basak; Georgy Chabakauri
发表日期2011-05-20
出版年2011
语种英语
摘要Despite much work on hedging in incomplete markets, the literature still lacks tractable dynamic hedges in plausible environments. In this article, we provide a simple solution to this problem in a general incomplete-market economy in which a hedger, guided by the traditional minimum-variance criterion, aims at reducing the risk of a non-tradable asset or a contingent claim. We derive fully analytical optimal hedges and demonstrate that they can easily be computed in various stochastic environments. Our dynamic hedges preserve the simple structure of complete-market perfect hedges and are in terms of generalized "Greeks," familiar in risk management applications, as well as retaining the intuitive features of their static counterparts. We obtain our time-consistent hedges by dynamic programming, while the extant literature characterizes either static or myopic hedges, or dynamic ones that minimize the variance criterion at an initial date and from which the hedger may deviate unless she can pre-commit to follow them. We apply our results to the discrete hedging problem of derivatives when trading occurs infrequently. We determine the corresponding optimal hedge and replicating portfolio value, and show that they have structure similar to their complete-market counterparts and reduce to generalized Black-Scholes expressions when specialized to the Black-Scholes setting. We also generalize our results to richer settings to study dynamic hedging with Poisson jumps, stochastic correlation and portfolio management with benchmarking.
主题Financial Economics
关键词Hedging Incomplete markets minimum-variance criterion Risk management Time-consistency Discrete hedging Derivatives Benchmarking Correlation risk Poisson jumps
URLhttps://cepr.org/publications/dp8402
来源智库Centre for Economic Policy Research (United Kingdom)
资源类型智库出版物
条目标识符http://119.78.100.153/handle/2XGU8XDN/537224
推荐引用方式
GB/T 7714
Suleyman Basak,Georgy Chabakauri. DP8402 Dynamic Hedging in Incomplete Markets: A Simple Solution. 2011.
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