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arXiv · 1506.03898

Numerical analysis on local risk-minimization forexponential L\'evy models

Takuji Arai·Yuto Imai·Ryoichi Suzuki
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Abstract

We illustrate how to compute local risk minimization (LRM) of call options for exponential L\'evy models. We have previously obtained a representation of LRM for call options; here we transform it into a form that allows use of the fast Fourier transform method suggested by Carr & Madan. In particular, we consider Merton jump-diffusion models and variance gamma models as concrete applications.

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Takuji Arai, Yuto Imai, Ryoichi Suzuki. 2015-06-12. Numerical analysis on local risk-minimization forexponential L\'evy models. https://arxiv.org/abs/1506.03898

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