A comparison of two quadratic approaches to hedging in incomplete markets

Heath, D; Platen, E; Schweizer, M

A comparison of two quadratic approaches to hedging in incomplete markets

Heath, D Platen, E

Schweizer, M

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Publication Type:: Journal Article
Citation:: Mathematical Finance, 2001, 11 (4), pp. 385 - 413
Issue Date:: 2001-01-01

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Field	Value	Language
dc.contributor.author	Heath, D	en_US
dc.contributor.author	Platen, E https://orcid.org/0000-0003-4595-3123	en_US
dc.contributor.author	Schweizer, M	en_US
dc.date.issued	2001-01-01	en_US
dc.identifier.citation	Mathematical Finance, 2001, 11 (4), pp. 385 - 413	en_US
dc.identifier.issn	0960-1627	en_US
dc.identifier.uri	http://hdl.handle.net/10453/3383
dc.description.abstract	This paper provides comparative theoretical and numerical results on risks, values, and hedging strategies for local risk-minimization versus mean-variance hedging in a class of stochastic volatility models. We explain the theory for both hedging approaches in a general framework, specialize to a Markovian situation, and analyze in detail variants of the well-known Heston (1993) and Stein and Stein (1991) stochastic volatility models. Numerical results are obtained mainly by PDE and simulation methods. In addition, we take special care to check that all of our examples do satisfy the conditions required by the general theory.	en_US
dc.relation.ispartof	Mathematical Finance	en_US
dc.relation.isbasedon	10.1111/1467-9965.00122	en_US
dc.subject.classification	Finance	en_US
dc.title	A comparison of two quadratic approaches to hedging in incomplete markets	en_US
dc.type	Journal Article
utslib.citation.volume	4	en_US
utslib.citation.volume	11	en_US
utslib.for	0102 Applied Mathematics	en_US
utslib.for	1502 Banking, Finance and Investment	en_US
pubs.embargo.period	Not known	en_US
pubs.organisational-group	/University of Technology Sydney
pubs.organisational-group	/University of Technology Sydney/Faculty of Business
pubs.organisational-group	/University of Technology Sydney/Faculty of Science
pubs.organisational-group	/University of Technology Sydney/Faculty of Science/School of Mathematical and Physical Sciences
pubs.organisational-group	/University of Technology Sydney/Strength - QFRC - Quantitative Finance Research Centre
utslib.copyright.status	closed_access
pubs.issue	4	en_US
pubs.publication-status	Published	en_US
pubs.volume	11	en_US

Abstract:

This paper provides comparative theoretical and numerical results on risks, values, and hedging strategies for local risk-minimization versus mean-variance hedging in a class of stochastic volatility models. We explain the theory for both hedging approaches in a general framework, specialize to a Markovian situation, and analyze in detail variants of the well-known Heston (1993) and Stein and Stein (1991) stochastic volatility models. Numerical results are obtained mainly by PDE and simulation methods. In addition, we take special care to check that all of our examples do satisfy the conditions required by the general theory.

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http://hdl.handle.net/10453/3383