Optimal hedging in discrete time
classification
💱 q-fin.PR
math.PR
keywords
hedgingdiscreteformulasoptimaltimeassetsbuildingcarlo
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Building on the work of Schweizer (1995) and Cern and Kallseny (2007), we present discrete time formulas minimizing the mean square hedging error for multidimensional assets. In particular, we give explicit formulas when a regime-switching random walk or a GARCH-type process is utilized to model the returns. Monte Carlo simulations are used to compare the optimal and delta hedging methods.
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