WIENER CHAOS: A NEW APPROACH TO OPTION HEDGING

Vincent Lacoste

22 citations0/0 files storedMathematical Finance

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Stochastic processes and financial applications Risk Management in Financial Firms Risk and Portfolio Optimization

Abstract

This paper addresses the problem of estimating and analyzing the residual risk that is not hedged by a discrete hedging strategy. the use of die chaotic representation allows an elegant decomposition of the residual risk to be hedged by adequate assets. Alternative strategies to the classical delta hedging and optimization under the risk‐neutral and historical probabilities are discussed.

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1973The Pricing of Options and Corporate Liabilities 1987The Pricing of Options on Assets with Stochastic Volatilities 1979Martingales and arbitrage in multiperiod securities markets 1993Dynamic Asset Pricing Theory.1990Portfolio Selection with Transaction Costs 1986Capital Market Equilibrium with Transaction Costs 1985Option Pricing and Replication with Transactions Costs 1993European Option Pricing with Transaction Costs

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