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| Author: | Howe, M. Rustem, B. Selby, M. |
| Title: | Multi-period minimax hedging strategies |
| Journal: | European Journal of Operational Research
1996 : AUG 23, VOL. 93:1, p. 185-204 |
| Index terms: | OPERATIONAL RESEARCH FINANCE TRANSACTION COSTS |
| Language: | eng |
| Abstract: | Option pricing and hedging under transaction costs are of major importance to marketmakers and investors. In this paper, the authors present the basic minimax strategy which determines the optimum number of shares that minimizes the worst-case potential hedging error under transaction costs for the next period. The authors present two extensions of this strategy. The first extension is the two-period minimax where the worst case is defined over a two-period setting. The objective function of the basic minimax strategy is augmented to include the hedging error for the second period. |
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