A Note on Delta Hedging in Markets with Jumps

  title={A Note on Delta Hedging in Markets with Jumps},
  author={Aleksandar Mijatovi{\'c} and Mikhail Urusov},
  journal={ERN: Econometric Modeling in Financial Economics (Topic)},
  • A. MijatovićM. Urusov
  • Published 25 March 2011
  • Mathematics
  • ERN: Econometric Modeling in Financial Economics (Topic)
Modelling stock prices via jump processes is common in financial markets. In practice, to hedge a contingent claim one typically uses the so-called delta-hedging strategy. This strategy stems from the Black--Merton--Scholes model where it perfectly replicates contingent claims. From the theoretical viewpoint, there is no reason for this to hold in models with jumps. However in practice the delta-hedging strategy is widely used and its potential shortcoming in models with jumps is disregarded… 
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