Abstract
We present a new approach for studying the problem of optimal hedging of a European option in a finite and complete discrete-time market model. We consider partial hedging strategies that maximize the success probability or minimize the expected shortfall under a cost constraint and show that these problems can be treated as so called knapsack problems, which are a widely researched subject in linear programming. This observation gives us better understanding of the problem of optimal hedging in discrete time.
Full Text
Submitted Version (
Free)
Published Version
Talk to us
Join us for a 30 min session where you can share your feedback and ask us any queries you have
Schedule a call