| 来源类型 | Discussion paper |
| 规范类型 | 论文 |
| 来源ID | DP8402 |
| 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 |
| URL | https://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. |
| 条目包含的文件 | 条目无相关文件。 | |||||
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