Mean‐Variance Hedging for Stochastic Volatility Models

Biagini, Francesca ; Guasoni, Paolo and Pratelli, Maurizio (2000): Mean‐Variance Hedging for Stochastic Volatility Models. In: Mathematical Finance, Vol. 10, No. 2: pp. 109-123

Abstract

In this paper we discuss the tractability of stochastic volatility models for pricing and hedging options with the mean-variance hedging approach. We characterize the variance-optimal measure as the solution of an equation between Doléans exponentials; explicit examples include both models where volatility solves a diffusion equation and models where it follows a jump process. We further discuss the closedness of the space of strategies.

• Item Type: Journal article
• Faculties: Mathematics, Computer Science and Statistics > Mathematics > Workgroup Financial Mathematics
• Subjects: 500 Science > 510 Mathematics
• ISSN: 0960-1627
• Language: English