Volume 6, Issue 3
Distribution of Discrete Time Delta-Hedging Error via a Recursive Relation

Minseok Park ,  Kyungsub Lee and Geon Ho Choe

10.4208/eajam.010116.220516a

East Asian J. Appl. Math.,6 (2016), pp. 314-336.

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  • Abstract

We introduce a new method to compute the approximate distribution of the Delta-hedging error for a path-dependent option, and calculate its value over various strike prices via a recursive relation and numerical integration. Including geometric Brownian motion and Merton’s jump diffusion model, we obtain the approximate distribution of the Delta-hedging error by differentiating its price with respect to the strike price. The distribution from Monte Carlo simulation is compared with that obtained by our method.

  • History

Published online: 2018-02

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