The efficient hedging problem for American options |
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Authors: | Sabrina Mulinacci |
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Institution: | (1) EURANDOM, TU/e Eindhoven, |
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Abstract: | In this paper, we prove the existence of efficient partial hedging strategies for a trader unable to commit the initial minimal
amount of money needed to implement a hedging strategy for an American option. The attitude towards the shortfall is modeled
in terms of a decreasing and convex risk functional satisfying a lower semicontinuity property with respect to the Fatou convergence
of stochastic processes. Some relevant examples of risk functionals are analyzed. Numerical computations in a discrete-time
market model are provided. In a Lévy market, an approximating solution is given assuming discrete-time trading. |
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Keywords: | |
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