On the Convergence of Higher Order Hedging Schemes: The Delta-Gamma Case

Magnus Wiktorsson, Mats Brodén

Research output: Contribution to journalArticlepeer-review

4 Citations (SciVal)

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.
Original languageEnglish
Pages (from-to)55-78
JournalSIAM Journal on Financial Mathematics
Volume2
DOIs
Publication statusPublished - 2011

Subject classification (UKÄ)

  • Probability Theory and Statistics

Keywords

  • rate of convergence
  • discrete time hedging
  • delta-gamma hedging

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