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Efficient Hedging of Options with Probabilistic Haar Wavelets
Joint Authors
González, Alfredo Lázaro
Catuogno, Pedro José
Ferrando, Sebastián Esteban
Source
ISRN Probability and Statistics
Issue
Vol. 2012, Issue 2012 (31 Dec. 2012), pp.1-37, 37 p.
Publisher
Hindawi Publishing Corporation
Publication Date
2012-09-18
Country of Publication
Egypt
No. of Pages
37
Main Subjects
Abstract EN
The paper brings forward the issue of efficient representations of financial claims; in particular it addresses the problem of large transaction costs in hedging replications.
Inspired by the localized properties of wavelets basis, Haar systems associated with space-time discretizations of continuous stochastic processes are proposed as a means to address the issue of efficient pathwise approximation.
Theoretical developments are presented that justify the use of these approximations to construct self-financing portfolios by means of binary options.
Upper bounds on the volume of transactions required to implement these portfolios are then established to illustrate the quality of the proposed approximations.
The approach is applicable to general financial claims of European type, including path-dependent ones, for continuous underlying processes.
Several numerical results and comparisons with delta hedging are also presented.
American Psychological Association (APA)
Catuogno, Pedro José& Ferrando, Sebastián Esteban& González, Alfredo Lázaro. 2012. Efficient Hedging of Options with Probabilistic Haar Wavelets. ISRN Probability and Statistics،Vol. 2012, no. 2012, pp.1-37.
https://search.emarefa.net/detail/BIM-510384
Modern Language Association (MLA)
Catuogno, Pedro José…[et al.]. Efficient Hedging of Options with Probabilistic Haar Wavelets. ISRN Probability and Statistics No. 2012 (2012), pp.1-37.
https://search.emarefa.net/detail/BIM-510384
American Medical Association (AMA)
Catuogno, Pedro José& Ferrando, Sebastián Esteban& González, Alfredo Lázaro. Efficient Hedging of Options with Probabilistic Haar Wavelets. ISRN Probability and Statistics. 2012. Vol. 2012, no. 2012, pp.1-37.
https://search.emarefa.net/detail/BIM-510384
Data Type
Journal Articles
Language
English
Notes
Includes bibliographical references
Record ID
BIM-510384