Discrete-Time Quadratic Hedging of Barrier Options in Exponential Lévy Model
arXiv:1603.03747 · doi:10.1007/978-3-319-45875-5_12
Abstract
We examine optimal quadratic hedging of barrier options in a discretely sampled exponential Lévy model that has been realistically calibrated to reflect the leptokurtic nature of equity returns. Our main finding is that the impact of hedging errors on prices is several times higher than the impact of other pricing biases studied in the literature.
arXiv comment19 pages