On the Convergence of Higher Order Hedging Schemes: The Delta-Gamma Case
Wiktorsson, Magnus; Brodén, Mats (2011). On the Convergence of Higher Order Hedging Schemes: The Delta-Gamma Case. SIAM Journal on Financial Mathematics, 2,, 55 - 78
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Published
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English
Authors:
Wiktorsson, Magnus
;
Brodén, Mats
Department:
Mathematical Statistics
Mathematical Finance-lup-obsolete
Financial Mathematics Group
Research Group:
Mathematical Finance-lup-obsolete
Financial Mathematics Group
Abstract:
Hedging errors induced by discrete rebalancing of the hedge portfolio of a delta-gamma hedging strategy are investigated. The rate of convergence of the expected squared hedging error as the number of adjustments of the hedge portfolio goes to infinity is analyzed. It is found that the delta-gamma strategy produces higher convergence rates than the usual delta strategy.
Keywords:
rate of convergence ;
discrete time hedging ;
delta-gamma hedging
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