Option valuation and hedging using asymmetric risk function: asymptotic optimality through fully nonlinear Partial Differential Equations - Archive ouverte HAL
Article Dans Une Revue Finance and Stochastics Année : 2020

Option valuation and hedging using asymmetric risk function: asymptotic optimality through fully nonlinear Partial Differential Equations

Résumé

Discrete time hedging produces a residual risk, namely, the tracking error. The major problem is to get valuation/hedging policies minimizing this error. We evaluate the risk between trading dates through a function penalizing asymmetrically profits and losses. After deriving the asymptotics within a discrete time risk measurement for a large number of trading dates, we derive the optimal strategies minimizing the asymptotic risk in the continuous time setting. We characterize the optimality through a class of fully nonlinear Partial Differential Equations (PDE). Numerical experiments show that the optimal strategies associated with discrete and asymptotic approach coincides asymptotically.
Fichier principal
Vignette du fichier
paperAsymptotic.pdf (1.47 Mo) Télécharger le fichier
Origine Fichiers produits par l'(les) auteur(s)
Loading...

Dates et versions

hal-01761234 , version 1 (08-04-2018)

Identifiants

Citer

Emmanuel Gobet, Isaque Pimentel, Xavier Warin. Option valuation and hedging using asymmetric risk function: asymptotic optimality through fully nonlinear Partial Differential Equations. Finance and Stochastics, 2020, 24 (3), pp.633-675. ⟨10.1007/s00780-020-00428-1⟩. ⟨hal-01761234⟩
329 Consultations
826 Téléchargements

Altmetric

Partager

More