Variance optimal hedging for continuous time additive processes and applications

Stéphane Goutte; Nadia Oudjane; Francesco Russo

doi:10.1080/17442508.2013.774402

Variance optimal hedging for continuous time additive processes and applications

Stéphane Goutte
, Nadia Oudjane
, Francesco Russo

Institut Galilée
LUISS University
Lamsid/EDF/R and D
ENSAE

Research output: Contribution to journal › Article › peer-review

Abstract

For a large class of vanilla contingent claims, we establish an explicit Föllmer-Schweizer decomposition when the underlying is an exponential of an additive process. This allows to provide an efficient algorithm for solving the mean variance hedging problem. Applications to models derived from the electricity market are performed.

Original language	English
Pages (from-to)	147-185
Number of pages	39
Journal	Stochastics
Volume	86
Issue number	1
DOIs	https://doi.org/10.1080/17442508.2013.774402
Publication status	Published - 1 Jan 2014

Keywords

Föllmer-Schweizer decomposition
Lévy's processes
additive processes
electricity markets
processes with independent increments
variance-optimal hedging

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10.1080/17442508.2013.774402

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title = "Variance optimal hedging for continuous time additive processes and applications",

abstract = "For a large class of vanilla contingent claims, we establish an explicit F{\"o}llmer-Schweizer decomposition when the underlying is an exponential of an additive process. This allows to provide an efficient algorithm for solving the mean variance hedging problem. Applications to models derived from the electricity market are performed.",

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AU - Oudjane, Nadia

AU - Russo, Francesco

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AB - For a large class of vanilla contingent claims, we establish an explicit Föllmer-Schweizer decomposition when the underlying is an exponential of an additive process. This allows to provide an efficient algorithm for solving the mean variance hedging problem. Applications to models derived from the electricity market are performed.

KW - Föllmer-Schweizer decomposition

KW - Lévy's processes

KW - additive processes

KW - electricity markets

KW - processes with independent increments

KW - variance-optimal hedging

U2 - 10.1080/17442508.2013.774402

DO - 10.1080/17442508.2013.774402

M3 - Article

AN - SCOPUS:84893697396

SN - 1744-2508

VL - 86

SP - 147

EP - 185

JO - Stochastics

JF - Stochastics

IS - 1

ER -

Variance optimal hedging for continuous time additive processes and applications

Abstract

Keywords

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