In this work, we consider the hedging error due to discrete trading in models with jumps. Extending an approach developped by Fukasawa  (2011)  for continuous processes, we propose a framework enabling  to (asymptotically) optimize the discretization times. More precisely, a discretization rule is said to be optimal if for a given cost function, no strategy has (asymptotically, for large cost) a lower mean square discretization error for a smaller cost. We focus on discretization rules based on hitting times and give explicit expressions for the optimal rules within this class.
In this work, we consider the hedging error due to discrete trading in models with jumps. Extending an approach developed by Fukasawa In Stochastic Analysis with Financial Applications (2011) 331-346 Birkh\"{a for continuous processes, we propose a framework enabling us to (asymptotically) optimize the discretization times. More precisely, a discretization rule is said to be optimal if for a given cost function, no strategy has (asymptotically, for large cost) a lower mean square discretization error for a smaller cost. We focus on discretization rules based on hitting times and give explicit expressions for the optimal rules within this class.
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developped by Fukasawa
developed by Fukasawa
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In Stochastic Analysis with Financial Applications
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331-346 Birkh\"{a
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