Variance Optimal Hedging for Continuous Time Processes with Independent Increments and Applications


Stéphane Goutte, Nadia Oudjane, Francesco Russo

For a large class of vanilla contingent claims, we establish an explicit Föllmer-Schweizer decomposition when the underlying is a process with independent increments (PII) and an exponential of a PII process. This allows to provide an efficient algorithm for solving the mean variance hedging problem. Applications to models derived from the electricity market are performed.

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