Hedging error measurement for imperfect strategies

Jack Baczynski, Jonathan da Silva and Rosalino Junior present an index for measuring hedging errors

tape-measure

A hedging strategy is intended to eliminate the exposure of the practitioner that holds a short or long position in a financial derivative security via a portfolio that replicates pointwise the value of the derivative at the maturity time T (see, for example, Hull 2003). In practice, trading times and observation times of market prices are discrete and trading occurs in incomplete markets. Any of these motives suffice to render the hedging strategies imperfect, so that a hedging error eT arises.

To continue reading...

You need to sign in to use this feature. If you don’t have a Risk.net account, please register for a trial.

Sign in
You are currently on corporate access.

To use this feature you will need an individual account. If you have one already please sign in.

Sign in.

Alternatively you can request an indvidual account here: