Delta Hedging in Financial Engineering: Towards a Model-Free Approach

Michel Fliess; Cédric Join

inria-00479824, version 1

Delta Hedging in Financial Engineering: Towards a Model-Free Approach

Michel Fliess () ^1, 2, Cédric Join ^1, 3

18th Mediterranean Conference on Control and Automation, MED'10 (2010) CDROM

Résumé : Delta hedging, which plays a crucial rôle 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.

1 : ALIEN (INRIA Saclay - Ile de France/Inria Lille - Nord Europe)
INRIA – Polytechnique - X – Ecole Centrale de Lille – CNRS : UMR8146
2 : Laboratoire d'informatique de l'école polytechnique (LIX)
CNRS : UMR7161 – Polytechnique - X
3 : Centre de recherche en automatique de Nancy (CRAN)
CNRS : UMR7039 – Université Henri Poincaré - Nancy I – Institut National Polytechnique de Lorraine (INPL)

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Contributeur : Michel Fliess <>
Soumis le : Dimanche 2 Mai 2010, 23:53:48
Dernière modification le : Jeudi 23 Décembre 2010, 22:51:17

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