ISSN:
1432-1122
Keywords:
Key words:Hedging, shortfall risk, efficient hedges, risk management, lower partial moments, convex duality, stochastic volatility
;
JEL Classification:G10, G12, G13, D81
;
Mathematics Subject Classification (1991):60H30, 62F03, 62P05, 90A09
Source:
Springer Online Journal Archives 1860-2000
Topics:
Mathematics
,
Economics
Notes:
Abstract. An investor faced with a contingent claim may eliminate risk by (super-) hedging in a financial market. As this is often quite expensive, we study partial hedges which require less capital and reduce the risk. In a previous paper we determined quantile hedges which succeed with maximal probability, given a capital constraint. Here we look for strategies which minimize the shortfall risk defined as the expectation of the shortfall weighted by some loss function. The resulting efficient hedges allow the investor to interpolate in a systematic way between the extremes of no hedge and a perfect (super-) hedge, depending on the accepted level of shortfall risk.
Type of Medium:
Electronic Resource
URL:
http://dx.doi.org/10.1007/s007800050008
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