Convergence and optimality of BS-type discrete hedging strategy under stochastic interest rate |
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Authors: | HE JiFeng & WU Lan |
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Institution: | HE JiFeng & WU Lan Department of Mathematics,Peking University,Beijing 100871,China |
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Abstract: | We focus on the asymptotic convergence behavior of the hedging errors of European stock option due to discrete hedging under stochastic interest rates. There are two kinds of BS-type discrete hedging differ in hedging instruments: one is the portfolio of underlying stock, zero coupon bond, and the money market account (Strategy BSI); the other is the underlying stock, zero coupon bond (Strategy BSII). Similar to the results of the deterministic interest rate case, we show that convergence speed of the disco... |
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Keywords: | discrete time hedging delta hedging stochastic interest rate |
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