2010/04/26 by Brodén, Mats, Wiktorsson, Magnus
#60F05 #60F25 #91B28 #FOS: Economics and business #FOS: Mathematics #Probability (math.PR) #Risk Management (q-fin.RM)
paper · doi:10.48550/arxiv.1004.4526
Discrete time hedging in a complete diffusion market is considered. The hedge portfolio is rebalanced when the absolute difference between delta of the hedge portfolio and the derivative contract reaches a threshold level. The rate of convergence of the expected squared hedging error as the threshold level approaches zero is analyzed. The results hinge to a great extent on a theorem stating that the difference between the hedge ratios normalized by the threshold level tends to a triangular distribution as the threshold level tends to zero.