Purba Banerjee, Srikanth Iyer, Shashi Jain
arXiv 2 Oct 2023 · Finance — Mathematical Finance
arXiv:2310.01104 · PDF · DOI · OpenAlex · Extracted main text
We consider the hedging of European options when the price of the underlying asset follows a single-factor Markovian framework. By working in such a setting, Carr and Wu \cite{carr2014static} derived a spanning relation between a given option and a continuum of shorter-term options written on the same asset. In this paper, we have extended their approach to simultaneously include options over multiple short maturities. We then show a practical implementation of this with a finite set of shorter-term options to determine the hedging error using a Gaussian Quadrature method. We perform a wide range of experiments for both the Black-Scholes and Merton Jump Diffusion models, illustrating the comparative performance of the two methods.
appendix boundary found by appendix_titled_section at “Appendix” · 92% of the source is main text. Read the extracted text to check this.
The works this paper leans on most, across its whole bibliography — not restricted to papers in our corpus. Ranked by composite intensity, which combines how often a work is mentioned, how many sections mention it, and how much of that falls in the main text rather than the appendix.
| Reference | Intensity | Mentions | Sections | Main text | |
|---|---|---|---|---|---|
| 1 | carr2014static APACrefauthors Carr, P. \ Wu, L. APACrefauthors \ (2014) 2014 | 1.000 | 28 | 6 | 100% |
| 2 | breeden1978prices APACrefauthors Breeden, D.T. \ Litzenberger, R.H.… (1978) 1978 | 0.644 | 2 | 2 | 100% |
| 3 | wu2016simple APACrefauthors Wu, L. \ Zhu, J. APACrefauthors \ (2016) 2016 | 0.644 | 2 | 2 | 100% |
| 4 | davis2007methods APACrefauthors Davis, P.J. \ Rabinowitz, P. APACref… (2007) 2007 | 0.511 | 2 | 1 | 100% |
| 5 | bakshi1997empirical APACrefauthors Bakshi, G. , Cao, C. Chen, Z. APA… (1997) 1997 | 0.405 | 1 | 1 | 100% |
| 6 | bakshi2000spanning APACrefauthors Bakshi, G. \ Madan, D. APACrefauth… (2000) 2000 | 0.405 | 1 | 1 | 100% |
| 7 | bakshi2003delta APACrefauthors Bakshi, G. \ Kapadia, N. APACrefautho… (2003) 2003 | 0.405 | 1 | 1 | 100% |
| 8 | balder2006robust APACrefauthors Balder, S. \ Mahayni, A. APACrefauth… (2006) 2006 | 0.405 | 1 | 1 | 100% |
| 9 | birru2012anatomy APACrefauthors Birru, J. \ Figlewski, S. APACrefaut… (2012) 2012 | 0.405 | 1 | 1 | 100% |
| 10 | black1973valuation APACrefauthors Black, F. \ Scholes, M. APACrefaut… (1973) 1973 | 0.405 | 1 | 1 | 100% |
Showing the top 10 of 25 scored citations.