The Optimal Hedging Ratio for Contingent Claims Based on Different Risk Aversions - Open Journal of Business and Management

OJBM > Vol.7 No.2, April 2019

The Optimal Hedging Ratio for Contingent Claims Based on Different Risk Aversions ()

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Download as PDF (Size: 360KB) PP. 447-454

DOI: 10.4236/ojbm.2019.72030 706 Downloads 1,255 Views Citations

Author(s)

Jianhua Guo

Affiliation(s)

School of Economics and Management, Shaoyang University, Shaoyang, China.

ABSTRACT

Based on utility theory, this paper firstly combined different utility functions with risk aversion coefficient and constructed different kinds of optimizing problems for hedgers to hedge for stochastic-payment-typed contingent claim, and then, by the aid of dynamic programming theory, effective multi-stage hedging strategy is proposed for different risk-averse hedgers. Lastly, the research results that the optimal hedging ratios for three kinds of utility functions are equivalent and do not relate to the risk aversion coefficient.

KEYWORDS

Risk Aversion, Contingent Claim, Hedging, The Optimal Hedging Ratio

Share and Cite:

Guo, J. (2019) The Optimal Hedging Ratio for Contingent Claims Based on Different Risk Aversions. Open Journal of Business and Management, 7, 447-454. doi: 10.4236/ojbm.2019.72030.

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