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The Tracking Error Rate of the Delta-Gamma Hedging Strategy

42 Pages Posted: 31 Dec 2009  

Emmanuel Gobet

Ecole Polytechnique, Paris - Centre de Mathematiques Appliquees

Azmi Makhlouf

Laboratoire Jean Kuntzmann - Université de Grenoble and CNRS

Date Written: July 2, 2009

Abstract

We analyse the convergence rate of the quadratic tracking error, when a Delta-Gamma hedging strategy is used at N discrete times. The fractional regularity of the payoff function plays a crucial role in the choice of the trading dates, in order to achieve optimal rates of convergence.

Keywords: hedging strategies, fractional regularity, L2 convergence

Suggested Citation

Gobet, Emmanuel and Makhlouf, Azmi, The Tracking Error Rate of the Delta-Gamma Hedging Strategy (July 2, 2009). Available at SSRN: https://ssrn.com/abstract=1492126 or http://dx.doi.org/10.2139/ssrn.1492126

Emmanuel Gobet (Contact Author)

Ecole Polytechnique, Paris - Centre de Mathematiques Appliquees ( email )

Palaiseau Cedex, 91128
France

Azmi Makhlouf

Laboratoire Jean Kuntzmann - Université de Grenoble and CNRS ( email )

LJK - IRMA
BP 53
Grenoble, 38041
France

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