Maximum Entropy Evaluation of Asymptotic Hedging Error under a Generalised Jump-Diffusion Model

Maximum Entropy Evaluation of Asymptotic Hedging Error under a Generalised Jump-Diffusion Model

In this paper we propose a maximum entropy estimator for the asymptotic distribution of the hedging error for options. Perfect replication of financial derivatives is not possible, due to market incompleteness and discrete-time hedging. We derive the asymptotic hedging error for options under a gene...

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Bibliographic Details
Main Authors: Farzad Alavi Fard, Firmin Doko Tchatoka, Sivagowry Sriananthakumar
Format: Article
Language:English
Published: MDPI AG 2021-02-01
Series:Journal of Risk and Financial Management
Subjects:
generalised jump
kernel biased
asymptotic hedging error
esscher transform
maximum entropy density
value-at-risk
Online Access:https://www.mdpi.com/1911-8074/14/3/97

Internet

https://www.mdpi.com/1911-8074/14/3/97

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