Option Pricing and Hedging with Temporal Correlations

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dc.creatorCornalba, Lorenzo
dc.creatorBouchaud, Jean-Philippe
dc.creatorPotters, Marc
dc.date2000-11-29
dc.date.accessioned2026-07-07T02:39:37Z
dc.date.available2026-07-07T02:39:37Z
dc.descriptionWe consider the problem of option pricing and hedging when stock returns are correlated in time. Within a quadratic-risk minimisation scheme, we obtain a general formula, valid for weakly correlated non-Gaussian processes. We show that for Gaussian price increments, the correlations are irrelevant, and the Black-Scholes formula holds with the volatility of the price increments on the scale of the re-hedging. For non-Gaussian processes, further non trivial corrections to the `smile' are brought about by the correlations, even when the hedge is the Black-Scholes Delta-hedge. We introduce a compact notation which eases the computations and could be of use to deal with more complicated models.
dc.descriptionLaTeX, 15 pp, no figure
dc.identifierhttps://arxiv.org/abs/cond-mat/0011506
dc.identifierhttp://arxiv.org/abs/cond-mat/0011506
dc.identifierInternational Journal of Theoretical and Applied Finance 5 (3) (2002) 307-320
dc.identifier.urihttp://salesiana.dossiersoluciones.com/handle/123456789/17080
dc.subjectCondensed Matter
dc.titleOption Pricing and Hedging with Temporal Correlations
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