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Numerical analysis on local risk-minimization forexponential L\'evy models

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  • Takuji Arai
  • Yuto Imai
  • Ryoichi Suzuki

Abstract

We illustrate how to compute local risk minimization (LRM) of call options for exponential L\'evy models. We have previously obtained a representation of LRM for call options; here we transform it into a form that allows use of the fast Fourier transform method suggested by Carr & Madan. In particular, we consider Merton jump-diffusion models and variance gamma models as concrete applications.

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  • Takuji Arai & Yuto Imai & Ryoichi Suzuki, 2015. "Numerical analysis on local risk-minimization forexponential L\'evy models," Papers 1506.03898, arXiv.org.
    • Handle: RePEc:arx:papers:1506.03898
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    Cited by:

    1. Takuji Arai & Yuto Imai, 2016. "On the difference between locally risk-minimizing and delta hedging strategies for exponential L\'evy models," Papers 1610.09085, arXiv.org.

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