Simultaneous Calibration and Quadratic Hedging of Options
Lindström, Erik; Jingyi, Guo (2013). Simultaneous Calibration and Quadratic Hedging of Options [Host publication title missing]. 8th BMRC - QASS Conference on Macro and Financial Economics: BMRC-QASS
Conference Proceeding/Paper
|
Published
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English
Authors:
Lindström, Erik
;
Jingyi, Guo
Department:
Mathematical Statistics
Mathematical Finance-lup-obsolete
Financial Mathematics Group
Research Group:
Mathematical Finance-lup-obsolete
Financial Mathematics Group
Abstract:
We derive a sequential algorithm for simultaneous calibration and quadratic hedging of options.
It can be applied to any model from which we can simulate paths and price options. The quadratic
hedging comes at no extra cost!
We have calibrated the Bates and NIG-CIR model to S&P 500 index options in order to evaluate
various hedging strategies (delta, quadratic), clearly indicating the advantage of quadratic hedging
over delta hedging.
Keywords:
Option Valuation ;
Calibration ;
Non-linear Kalman filter ;
Quadratic hedging
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