Hedging at-the-money digital options near maturity (Q6164847)

A financial model is provided to evaluate both dynamic and static hedging, e.g. near the maturity. This leads to an optimization problem, the aim being to minimize the probability of sub-hedging the digital option at maturity. The authors provide the following elements (among others): computation of delta Greek of a digital call option; computation of the bull spread (in GBM and Heston model); optimization problem with a gradient method in case of GBM model; calibration of the CGMY model. A section is devoted to some illustrations of these contributions by means of a variety of numerical experiments.