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arxiv: cond-mat/9907421 · v2 · submitted 1999-07-27 · ❄️ cond-mat.stat-mech · q-fin.ST

Minimal Variance Hedging of Options with Student-t Underlying

classification ❄️ cond-mat.stat-mech q-fin.ST
keywords hedgingoptionsstudent-tunderlyingadditivebouchaudcallcase
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I explicitly work out closed form solutions for the optimal hedging strategies (in the sense of Bouchaud and Sornette) in the case of European call options, where the underlying is modeled by (unbiased) iid additive returns with Student-t distributions. The results may serve as illustrative examples for option pricing in the presence of fat tails.

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