The tracking error rate of the Delta-Gamma hedging strategy

Emmanuel Gobet (1) , Azmi Makhlouf (1)

1 MATHFI - Mathématiques financières

We analyse the convergence rate of the quadratic tracking error, when a Delta-Gamma hedging strategy is used at N discrete times. The fractional regularity of the payoff function plays a crucial role in the choice of the trading dates, in order to achieve optimal rates of convergence.

Mots clés: hedging strategies; fractional regularity; L2 convergence

Domaines: Probabilités [math.PR]

Emmanuel Gobet, Azmi Makhlouf. The tracking error rate of the Delta-Gamma hedging strategy. Mathematical Finance, 2012, 22 (2), pp.277-309. ⟨10.1111/j.1467-9965.2010.00466.x⟩. ⟨hal-00401182⟩