Article ID Journal Published Year Pages File Type
4645346 Applied Numerical Mathematics 2011 10 Pages PDF
Abstract

In mathematical finance one is interested in the quadratic error which occurs while replacing a continuously adjusted portfolio by a discretely adjusted one. We first study higher order approximations of stochastic integrals. Then we apply the results to quantify quadratic error which occurs in estimating the discretely adjusted hedging risk in pricing European options in a generalized Black–Scholes market.

Related Topics
Physical Sciences and Engineering Mathematics Computational Mathematics