Mean-Variance Hedging for Stochastic Volatility Models

Posted: 14 Jun 2003

See all articles by Francesca Biagini

Francesca Biagini

University of Bologna - Department of Mathematics

Paolo Guasoni

Dublin City University - School of Mathematical Sciences; Boston University - Department of Mathematics and Statistics

Maurizio Pratelli

University of Pisa - Department of Mathematics

Abstract

In this paper we discuss the tractability of stochastic volatility models for pricing and hedging options with the mean-variance hedging approach. We characterize the variance-optimal measure as the solution of an equation between Doleans exponentials; explicit examples include both models where volatility solves a diffusion equation and models where it follows a jump process. We further discuss the closedness of the space of strategies.

Suggested Citation

Biagini, Francesca and Guasoni, Paolo and Pratelli, Maurizio, Mean-Variance Hedging for Stochastic Volatility Models. Available at SSRN: https://ssrn.com/abstract=242882

Francesca Biagini (Contact Author)

University of Bologna - Department of Mathematics ( email )

Piazzadi Porta San Donato, 5
Bologna, 40126
Italy

Paolo Guasoni

Dublin City University - School of Mathematical Sciences ( email )

Dublin
Ireland

HOME PAGE: http://www.guasoni.com

Boston University - Department of Mathematics and Statistics ( email )

Boston, MA 02215
United States

Maurizio Pratelli

University of Pisa - Department of Mathematics

Via Buonarroti 2
I-56126 Pisa
Italy

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