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On the difference between locally risk-minimizing and delta hedging strategies for exponential Lévy models

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Abstract

We discuss the difference between locally risk-minimizing and delta hedging strategies for exponential Lévy models, where delta hedging strategies in this paper are defined under the minimal martingale measure. We give firstly model-independent upper estimations for the difference. In addition we show numerical examples for two typical exponential Lévy models: Merton models and variance gamma models.

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Acknowledgements

Takuji Arai was supported by JSPS Grant-in-Aid for Scientific Research (C) No.15K04936. Yuto Imai was supported by JSPS Grant-in-Aid for Young Scientists (B) No. 17K13764 and Waseda University Grants for Special Research Projects (Project Number: 2016K-174 and 2016B-123).

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Correspondence to Yuto Imai.

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Arai, T., Imai, Y. On the difference between locally risk-minimizing and delta hedging strategies for exponential Lévy models. Japan J. Indust. Appl. Math. 34, 845–858 (2017). https://doi.org/10.1007/s13160-017-0268-6

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  • DOI: https://doi.org/10.1007/s13160-017-0268-6

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