Risk minimization in stochastic volatility models: model risk and empirical performance
Abstract: In this paper the performance of locally risk-minimizing delta hedge strategies for European options in stochastic volatility models is studied from an experimental as well as from an empirical perspective. These hedge strategies are derived for a large class of diffusion-type stochastic volatility models, and they are as easy to implement as usual delta hedges. Our simulation results on model risk show that these risk-minimizing hedges are robust with respect to uncertainty and misconceptions about the underlying data generating process. The empirical study, which includes the U.S. sub-prime crisis period, documents that in equity markets risk-minimizing delta hedges consistently outperform usual delta hedges by approximately halving the standard deviation of the profit-and-loss ratio
- Location
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Deutsche Nationalbibliothek Frankfurt am Main
- Extent
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Online-Ressource
- Language
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Englisch
- Notes
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Postprint
begutachtet (peer reviewed)
In: Quantitative Finance ; 9 (2009) 6 ; 693-704
- Classification
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Wirtschaft
- Event
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Veröffentlichung
- (where)
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Mannheim
- (when)
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2009
- Creator
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Poulsen, Rolf
Schenk-Hoppé, Klaus Reiner
Ewald, Christian-Oliver
- DOI
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10.1080/14697680902852738
- URN
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urn:nbn:de:0168-ssoar-221553
- Rights
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Open Access unbekannt; Open Access; Der Zugriff auf das Objekt ist unbeschränkt möglich.
- Last update
-
25.03.2025, 1:51 PM CET
Data provider
Deutsche Nationalbibliothek. If you have any questions about the object, please contact the data provider.
Associated
- Poulsen, Rolf
- Schenk-Hoppé, Klaus Reiner
- Ewald, Christian-Oliver
Time of origin
- 2009
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