Basak, Suleyman and Chabakauri, Georgy (2012) Dynamic hedging in incomplete markets: a simple solution. Review of Financial Studies, 25 (6). pp. 1845-1896. ISSN 0893-9454
Full text not available from this repository.Abstract
We provide fully analytical, optimal dynamic hedges in incomplete markets by employing the traditional minimum-variance criterion. Our hedges are in terms of generalized “Greeks” and naturally extend no-arbitrage–based risk management in complete markets to incomplete markets. Whereas the literature characterizes either minimum-variance static, myopic, or dynamic hedges from which a hedger may deviate unless able to precommit, our hedges are time-consistent. We apply our results to derivatives replication with infrequent trading and determine hedges and replication values, which reduce to generalized Black-Scholes expressions in specific settings. We also investigate dynamic hedging with jumps, stochastic correlation, and portfolio management with benchmarking.
| Item Type: | Article |
|---|---|
| Official URL: | http://rfs.oxfordjournals.org/ |
| Additional Information: | © 2012 The Author |
| Divisions: | Finance |
| Subjects: | H Social Sciences > HG Finance |
| JEL classification: | C - Mathematical and Quantitative Methods > C6 - Mathematical Methods and Programming > C61 - Optimization Techniques; Programming Models; Dynamic Analysis D - Microeconomics > D8 - Information, Knowledge, and Uncertainty > D81 - Criteria for Decision-Making under Risk and Uncertainty G - Financial Economics > G1 - General Financial Markets > G11 - Portfolio Choice; Investment Decisions |
| Date Deposited: | 12 Jun 2012 11:05 |
| Last Modified: | 20 Oct 2021 01:57 |
| URI: | http://eprints.lse.ac.uk/id/eprint/44309 |
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