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PERFECT AND PARTIAL HEDGING FOR SWING GAME OPTIONS IN DISCRETE TIME
Author(s) -
Dolinsky Yan,
Iron Yonathan,
Kifer Yuri
Publication year - 2011
Publication title -
mathematical finance
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.98
H-Index - 81
eISSN - 1467-9965
pISSN - 0960-1627
DOI - 10.1111/j.1467-9965.2010.00440.x
Subject(s) - valuation (finance) , economics , extension (predicate logic) , discrete time and continuous time , mathematical economics , swing , actuarial science , econometrics , computer science , mathematics , finance , statistics , physics , acoustics , programming language
The paper introduces and studies hedging for game (Israeli) style extension of swing options considered as multiple exercise derivatives. Assuming that the underlying security can be traded without restrictions, we derive a formula for valuation of multiple exercise options via classical hedging arguments. Introducing the notion of the shortfall risk for such options we study also partial hedging which leads to minimization of this risk.