Workshop: Optimization and Optimal Control
Time: Fri, October 24, 2008, 09:00-09:50
Speaker: Peter Tankov
Abstract
Most authors who studied the problem of option hedging in incomplete markets, focused on finding the strategies that minimize the residual hedging error.
However, the resulting strategies are usually unrealistic because they require a continuously rebalanced portfolio. In practice, the portfolios are rebalanced discretely, which leads to a 'hedging error of the second type', due to the difference between the optimal portfolio and its discretely rebalanced version. In this talk, we analyze this second hedging error and present several limit theorems for the convergence of the renormalized error when the discretization step tends to zero, in the framework of general Itô processes with jumps.
In particular, we shall see that in pure jump models, the convergence rate of the discretization error to zero may be improved by an optimal choice of rebalancing dates.
Presentation slides (pdf, 329 KB)
URL: www.ricam.oeaw.ac.at/specsem/sef/events/program/presentation.php
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