A Closed-Form Solution for the Global Quadratic Hedging of Options Under Geometric Gaussian Random Walks

https://jod.pm-research.com/content/26/3/97

Posted: 4 Aug 2018

See all articles by Frédéric Godin

Frédéric Godin

Concordia University, Quebec - Department of Mathematics & Statistics; Université Laval

Date Written: July 15, 2018

Abstract

A closed-form solution is obtained for the discrete-time global quadratic hedging problem of Schweizer (1995) applied to vanilla European options under the geometric Gaussian random walk model for the underlying asset. The computation of coefficients embedded in the closed-form expression can be computed either directly or through a recursive algorithm.

Keywords: Variance-Optimal Hedging, Risk Management, Closed-Form Solution, Gaussian Random Walks

JEL Classification: G32, C61

Suggested Citation

Godin, Frédéric, A Closed-Form Solution for the Global Quadratic Hedging of Options Under Geometric Gaussian Random Walks (July 15, 2018). https://jod.pm-research.com/content/26/3/97. Available at SSRN: https://ssrn.com/abstract=3214309 or http://dx.doi.org/10.2139/ssrn.3214309

Frédéric Godin (Contact Author)

Concordia University, Quebec - Department of Mathematics & Statistics ( email )

1455 De Maisonneuve Blvd. W.
Montreal, Quebec H3G 1M8
Canada

Université Laval ( email )

2214 Pavillon J-A. DeSeve
Quebec, Quebec G1K 7P4
Canada

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