Short Communications

Variance-minimizing hedging in the model with jumps at deterministic moments

V. M. Radchenko

National Taras Shevchenko University of Kyiv

Abstract: We consider a model in which the asset price is driven by the Wiener process and, in addition, has random changes at earlier known nonrandom time moments. The explicit form of the variance-minimizing hedging strategy for the European call option is derived. The results are based on the Föllmer–Schweizer decomposition of contingent claims.

Keywords: variance-minimizing hedging, European call option, Föllmer–Schweizer decomposition, model of asset price with jumps, nonrandom jump times, minimal martingale measure.

Received: 19.08.2004

DOI: 10.4213/tvp44

 English version: Theory of Probability and its Applications, 2007, 51:3, 536–545

Bibliographic databases:

• 
• 
• 
• 
•