Asymptotically optimal discretization of hedging strategies with jumps

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Abstract

In this work, we consider the hedging error due to discrete trading in models with jumps. Extending an approach developed by Fukasawa [In Stochastic Analysis with Financial Applications (2011) 331-346Birkhäuser/Springer Basel AG] for continuous processes, we propose a framework enabling us to (asymptotically) optimize the discretization times. More precisely, a discretization rule is said to be optimal if for a given cost function, no strategy has (asymptotically, for large cost) a lower mean square discretization error for a smaller cost. We focus on discretization rules based on hitting times and give explicit expressions for the optimal rules within this class. © Institute of Mathematical Statistics, 2014.

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APA

Rosenbaum, M., & Tankov, P. (2014). Asymptotically optimal discretization of hedging strategies with jumps. Annals of Applied Probability, 24(3), 1002–1048. https://doi.org/10.1214/13-AAP940

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