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Option pricing and portfolio hedging under the mixed hedging strategy

Author

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  • Wang, Xiao-Tian
  • Zhao, Zhong-Feng
  • Fang, Xiao-Fen

Abstract

This paper is concerned in the option pricing and portfolio hedging in a discrete time incomplete market. It has been shown that scaling and residual risks as well as the mixed hedging strategy play an important role in option pricing and portfolio hedging in a discrete time case. In particular, the relation between scaling (i.e., trading frequency) and portfolio hedging is discussed.

Suggested Citation

  • Wang, Xiao-Tian & Zhao, Zhong-Feng & Fang, Xiao-Fen, 2015. "Option pricing and portfolio hedging under the mixed hedging strategy," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 424(C), pages 194-206.
    • Handle: RePEc:eee:phsmap:v:424:y:2015:i:c:p:194-206
    DOI: 10.1016/j.physa.2015.01.021
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    References listed on IDEAS

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    Cited by:

    1. Gong, Xiaoli & Zhuang, Xintian, 2016. "Option pricing for stochastic volatility model with infinite activity Lévy jumps," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 455(C), pages 1-10.
    2. Farzad Alavi Fard & Firmin Doko Tchatoka & Sivagowry Sriananthakumar, 2021. "Maximum Entropy Evaluation of Asymptotic Hedging Error under a Generalised Jump-Diffusion Model," JRFM, MDPI, vol. 14(3), pages 1-19, February.
    3. Wang, Xiao-Tian & Li, Zhe & Zhuang, Le, 2017. "Risk preference, option pricing and portfolio hedging with proportional transaction costs," Chaos, Solitons & Fractals, Elsevier, vol. 95(C), pages 111-130.
    4. Shi Qiu & Sovan Mitra, 2018. "Mathematical Properties Of American Chooser Options," Journal of Enterprising Culture (JEC), World Scientific Publishing Co. Pte. Ltd., vol. 21(08), pages 1-30, December.
    5. Zhang, Xili & Xiao, Weilin, 2017. "Arbitrage with fractional Gaussian processes," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 471(C), pages 620-628.

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