A comparison of two quadratic approaches to hedging in incomplete markets
type: Item
instance of: scholarly article
zbMATH Open document ID: 1032.91058
DOI: 10.1111/1467-9965.00122
author: Eckhard Platen
author: David Heath
author: Martin Schweizer
published in: Mathematical Finance
publication date: 2004-03-16T00:00:00Z
Mathematics Subject Classification ID: 91B26
Mathematics Subject Classification ID: 91B30
Mathematics Subject Classification ID: 91B70
zbMATH DE Number: 1704433
zbMATH Keywords: incomplete financial markets
zbMATH Keywords: stochastic models
zbMATH Keywords: local risk-minimisation
zbMATH Keywords: mean-variance hedging
zbMATH Keywords: partial differential equations
zbMATH Keywords: simulation
MaRDI profile type: Publication
full work available at URL: https://doi.org/10.1111/1467-9965.00122
OpenAlex ID: W2063687989
title: A comparison of two quadratic approaches to hedging in incomplete markets
review text: The valuation and hedging of derivatives in incomplete financial markets is a frequently studied problem in mathematical finance that still lacks of a commonly agreed uniformly superior method. The authors with their paper try to contribute to the discussion on this issue by comparing both theoretically and numerically the two main competing quadratic hedging approaches, the local risk-minimization and the mean-variance hedging in a class of stochastic volatility models. They explain the theory for both approaches in a general framework, they specialise to a Markovian situation, and then analyse in detail variants of two well-known stochastic volatility models, the Heston and Stein and Stein models. They also provide numerical results obtained mainly through the use of partial differential equations and simulation methods taking special care in order to check that the presented examples satisfy the required by the general related theory conditions.
reviewed by: Vangelis Grigoroudis
description: scientific article; zbMATH DE number 1704433