Title :
Research on Quadratic Hedging for Stochastic Payment Styled Claims
Author :
Xiao Qing-xian ; Guo Jian-Hua
Author_Institution :
Bus. Sch., Univ. of Shanghai for Sci. & Technol., Shanghai, China
Abstract :
By measuring the total risk by conditional mean square error between the terminal valuation of hedging portfolio and the total payment during the hedging horizon, and under the constraint of self-financing strategy, in this paper, at first, we properly construct a hedging model to study the quadratic hedging for stochastic payment styled contingent claims; then, during the hedging horizon [0, T], by dynamic programming and backward recursion, we get the recursive expressions of hedging strategies, which can minimize the terminal risk and may be referential to hedging practice.
Keywords :
constraint handling; dynamic programming; financial management; mean square error methods; quadratic programming; stochastic processes; backward recursion; conditional mean square error; dynamic programming; hedging horizon; hedging portfolio; hedging strategy; quadratic hedging model; recursive expression; self-financing strategy constraint; stochastic payment styled contingent claim; terminal valuation; Contracts; Cost accounting; Dynamic programming; Europe; Insurance; Portfolios; Stochastic processes;
Conference_Titel :
Management and Service Science (MASS), 2011 International Conference on
Conference_Location :
Wuhan
Print_ISBN :
978-1-4244-6579-8
DOI :
10.1109/ICMSS.2011.5998453
