Variance optimal hedging for continuous time additive processes and applications

Stéphane Goutte, Nadia Oudjane and Francesco Russo

january, 2014

Publication type:

Paper in peer-reviewed journals

Journal:

Stochastics An International Journal of Probability and Stochastic Processes., vol. 81 (1), pp. 147--185

DOI:

10.1080/17442508.2013.774402

HAL:

hal-00786177

arXiv:

1302.1965

Keywords :

Variance-optimal hedging, Föllmer-Schweizer decomposition, Lévy's processes, Electricity markets, Processes with independent increments, Additive processes.

Abstract:

For a large class of vanilla contingent claims, we establish an explicit Föllmer-Schweizer decomposition when the underlying is an exponential of an additive process. This allows to provide an efficient algorithm for solving the mean variance hedging problem. Applications to models derived from the electricity market are performed.

BibTeX:

@article{Gou-Oud-Rus-2014,
    author={Stéphane Goutte and Nadia Oudjane and Francesco Russo },
    title={Variance optimal hedging for continuous time additive 
           processes and applications },
    doi={10.1080/17442508.2013.774402 },
    journal={Stochastics An International Journal of Probability and 
           Stochastic Processes. },
    year={2014 },
    month={1},
    volume={81 (1) },
    pages={147--185},
}