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Semi-static variance-optimal hedging in stochastic volatility models with Fourier representation
Published online by Cambridge University Press: 01 October 2019
Abstract
We introduce variance-optimal semi-static hedging strategies for a given contingent claim. To obtain a tractable formula for the expected squared hedging error and the optimal hedging strategy we use a Fourier approach in a multidimensional factor model. We apply the theory to set up a variance-optimal semi-static hedging strategy for a variance swap in the Heston model, which is affine, in the 3/2 model, which is not, and in a market model including jumps.
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- © Applied Probability Trust 2019
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