IDEAS home Printed from https://ideas.repec.org/a/wly/jfutmk/v29y2009i5p397-413.html
   My bibliography  Save this article

A new scheme for static hedging of European derivatives under stochastic volatility models

Author

Listed:
  • Akihiko Takahashi
  • Akira Yamazaki

Abstract

This study proposes a new scheme for static hedging of European path‐independent derivatives under stochastic volatility models. First, we show that pricing European path‐independent derivatives under stochastic volatility models is transformed to pricing those under one‐factor local volatility models. Next, applying an efficient static replication method for one‐dimensional price processes developed by Takahashi and Yamazaki (2008), we present a static hedging scheme for European path‐independent derivatives. Finally, a numerical example comparing our method with a dynamic hedging method under Heston's (1993) stochastic volatility model is used to demonstrate that our hedging scheme is effective in practice. © 2009 Wiley Periodicals, Inc. Jrl Fut Mark 29:397–413, 2009

Suggested Citation

  • Akihiko Takahashi & Akira Yamazaki, 2009. "A new scheme for static hedging of European derivatives under stochastic volatility models," Journal of Futures Markets, John Wiley & Sons, Ltd., vol. 29(5), pages 397-413, May.
  • Handle: RePEc:wly:jfutmk:v:29:y:2009:i:5:p:397-413
    as

    Download full text from publisher

    File URL: http://hdl.handle.net/
    Download Restriction: no
    ---><---

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. San‐Lin Chung & Yi‐Ta Huang & Pai‐Ta Shih & Jr‐Yan Wang, 2019. "Semistatic hedging and pricing American floating strike lookback options," Journal of Futures Markets, John Wiley & Sons, Ltd., vol. 39(4), pages 418-434, April.
    2. Jingtang Ma & Dongya Deng & Harry Zheng, 2016. "Convergence analysis and optimal strike choice for static hedges of general path-independent pay-offs," Quantitative Finance, Taylor & Francis Journals, vol. 16(4), pages 593-603, April.
    3. Vikranth Lokeshwar Dhandapani & Shashi Jain, 2023. "Data-driven Approach for Static Hedging of Exchange Traded Options," Papers 2302.00728, arXiv.org, revised Jan 2024.
    4. Akira Yamazaki, 2022. "Recovering subjective probability distributions," Journal of Futures Markets, John Wiley & Sons, Ltd., vol. 42(7), pages 1234-1263, July.

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:wly:jfutmk:v:29:y:2009:i:5:p:397-413. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no bibliographic references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Wiley Content Delivery (email available below). General contact details of provider: http://www.interscience.wiley.com/jpages/0270-7314/ .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.