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On suboptimality of delta hedging for Asian options. (English) Zbl 1315.91064

Summary: In the paper we use Asian options in the Black-Scholes framework to demonstrate that discrete-time hedging based on the standard delta is significantly less efficient than some of the optimal hedging strategies when the hedging interval decreases to zero. We provide an explanation of this phenomenon and propose a correction of the standard delta that leads to an asymptotically efficient method.

MSC:

91G20 Derivative securities (option pricing, hedging, etc.)
60H30 Applications of stochastic analysis (to PDEs, etc.)
62P05 Applications of statistics to actuarial sciences and financial mathematics
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