Rolf Poulsen (Gothenburg University & University of Copenhagen)

Auto-Static for the People: Risk-Minimizing Hedges for Barrier Options

Abstract: We present a straightforward method for computing
risk-minimizing static hedge strategies under general asset
dynamics. Experimental investigation s for barrier options show that
in a stochastic volatility model with jumps the resulting hedges have
superior performance to previous suggestions in the  literature. We
also illustrate that the risk-minimizing static hedges work in an
infinite intensity Levy-driven model, and that the performance of the
hedges are robust with respect to model risk.

This is joint work with Johannes Sivén, Lund University