Delta Hedging in Financial Engineering: Towards a Model-Free Approach
Abstract
Delta hedging, which plays a crucial r\^ole in modern financial engineering, is a tracking control design for a "risk-free" management. We utilize the existence of trends in financial time series (Fliess M., Join C.: A mathematical proof of the existence of trends in financial time series, Proc. Int. Conf. Systems Theory: Modelling, Analysis and Control, Fes, 2009. Online: http://hal.inria.fr/inria-00352834/en/) in order to propose a model-free setting for delta hedging. It avoids most of the shortcomings encountered with the now classic Black-Scholes-Merton framework. Several convincing computer simulations are presented. Some of them are dealing with abrupt changes, i.e., jumps.
Cite
@article{arxiv.1005.0194,
title = {Delta Hedging in Financial Engineering: Towards a Model-Free Approach},
author = {Michel Fliess and Cédric Join},
journal= {arXiv preprint arXiv:1005.0194},
year = {2010}
}
Comments
18th Mediterranean Conference on Control and Automation, Marrakech : Morocco (2010)