Variance-optimal hedging for processes with stationary independent increments

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dc.creatorHubalek, Friedrich
dc.creatorKallsen, Jan
dc.creatorKrawczyk, Leszek
dc.date2006-07-05
dc.date.accessioned2026-07-07T12:11:17Z
dc.date.available2026-07-07T12:11:17Z
dc.descriptionWe determine the variance-optimal hedge when the logarithm of the underlying price follows a process with stationary independent increments in discrete or continuous time. Although the general solution to this problem is known as backward recursion or backward stochastic differential equation, we show that for this class of processes the optimal endowment and strategy can be expressed more explicitly. The corresponding formulas involve the moment, respectively, cumulant generating function of the underlying process and a Laplace- or Fourier-type representation of the contingent claim. An example illustrates that our formulas are fast and easy to evaluate numerically.
dc.descriptionPublished at http://dx.doi.org/10.1214/105051606000000178 in the Annals of Applied Probability (http://www.imstat.org/aap/) by the Institute of Mathematical Statistics (http://www.imstat.org)
dc.identifierhttps://arxiv.org/abs/math/0607112
dc.identifierhttp://arxiv.org/abs/math/0607112
dc.identifierAnnals of Applied Probability 2006, Vol. 16, No. 2, 853-885
dc.identifierdoi:10.1214/105051606000000178
dc.identifier.urihttp://salesiana.dossiersoluciones.com/handle/123456789/210176
dc.subjectProbability
dc.subjectComputational Finance
dc.subject44A10, 60G51, 91B28 (Primary)
dc.titleVariance-optimal hedging for processes with stationary independent increments
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