The Optimal Hedge Ratio in Option Pricing: The Case of Exponentially Truncated Lévy Stable Distribution

Gigel Busca¹, Emmanuel Haven², Franck Jovanovic³, Christophe Schinckus^2*

¹Department of Condensed Matter Physics, Université de Montréal, Montréal, Canada.
²School of Management, University of Leicester, Leicester, UK.
³Department of Labour, Economics and Management, TELUQ and Université du Québec, Montréal, Canada.

DOI: 10.4236/tel.[phone]                

Abstract

In financial option pricing, the stable Lévy framework is a problematic issue because of its (theoretical) infinite invariance. This paper deals with the integration of these processes into option pricing by defining the minimal theoretical condition required for an optimal risk hedging based on a stable Lévy framework with an exponentially truncated distribution.

Keywords

Hedge Ratio, Lévy Stable Distribution, Exponentially Truncated Distribution, Econophysics

Conflicts of Interest

The authors declare no conflicts of interest.

References

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