How to Avoid a Hedging Bias

Arbeitspapier

In this paper, the effects of so-called model misspecification and the effects of dropping the assumption that continuous rebalancing is possible are examined. Strategies which are robust if applied continuously fail to be robust if applied in discrete time. Therefore, the hedging bias which originates from the effects of time-discretising strategies is analysed. It turns out that a systematic hedging bias can only be avoided if a discrete-time hedging model is used. It is shown how the robustness property for convex payoffs is recovered while at the same time the hedging bias is avoided.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: Bonn Econ Discussion Papers ; No. 34/2002

Classification and Topics

• Classification: Wirtschaft ; Asset Pricing; Trading Volume; Bond Interest Rates ; Contingent Pricing; Futures Pricing; option pricing
• Subject: Model misspecification ; hedging strategies ; convex payoffs ; superhedging ; discrete-time trading ; Black-Scholes-Modell ; Hedging ; Bias ; Theorie

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Dudenhausen, Antje
• Event: Veröffentlichung
• (who): University of Bonn, Bonn Graduate School of Economics (BGSE)
• (where): Bonn
• (when): 2002

Further information

• Handle: http://hdl.handle.net/10419/22855
• Last update: 10.03.2025, 11:44 AM CET