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We illustrate how to compute local risk minimization (LRM) of call options for exponential Levy models. We have previously obtained a representation of LRM for call options; here we transform it into a form that allows use of the fast Fourier transform method suggested by Carr & Madan. In particular, we consider Merton jump-diffusion models and variance gamma models as concrete applications.
We discuss the difference between locally risk-minimizing and delta hedging strategies for exponential Levy models, where delta hedging strategies in this paper are defined under the minimal martingale measure. We give firstly model-independent upper
We obtain explicit representations of locally risk-minimizing strategies of call and put options for the Barndorff-Nielsen and Shephard models, which are Ornstein--Uhlenbeck-type stochastic volatility models. Using Malliavin calculus for Levy process
The authors aim to develop numerical schemes of the two representative quadratic hedging strategies: locally risk minimizing and mean-variance hedging strategies, for models whose asset price process is given by the exponential of a normal inverse Ga
We derive representations of local risk-minimization of call and put options for Barndorff-Nielsen and Shephard models: jump type stochastic volatility models whose squared volatility process is given by a non-Gaussian rnstein-Uhlenbeck process. The
We consider option hedging in a model where the underlying follows an exponential Levy process. We derive approximations to the variance-optimal and to some suboptimal strategies as well as to their mean squared hedging errors. The results are obtain