13 octobre 2017

Heure: 11h30à12h45
Lieu: DES-2225

Détails supplémentaires

Conférencier(e) : Maciej Augustyniak

Invité par : Arnaud Dufays

Local and global quadratic hedging are alternatives to delta hedging that more appropriately address the hedging problem in incomplete markets. The objective of this article is to investigate and contrast the effectiveness of these strategies under GARCH models, both experimentally and empirically. Our analysis centers on three important practical issues: (emph{i}) the value added of global over local quadratic hedging, (emph{ii}) the importance of the choice of measure (physical or risk-neutral) when implementing quadratic hedging, and (emph{iii}) the robustness of quadratic hedging to model mis-specification. We find that a global approach to quadratic hedging significantly reduces the risk of hedging European call and put options with long-term maturities (one year or more), provided that it is implemented  under the physical probability measure. This strategy should therefore be advocated when hedging Long-Term Equity AnticiPation Securities, known as LEAPS.

http://dx.doi.org/10.1080/14697688.2017.1279342