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Hedging at-the-money digital options near maturity

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Hedging at-the-money digital options near maturity, remains a challenge in quantitative finance. In the present work, we carry out a hedging strategy by means of a bull spread. We study the probability of super- and sub-hedge the digital option and minimize the probability of a sub-hedge considering the cost of hedging and illiquidity issues. We perform a wide variety of numerical experiments under different models for the underlying asset dynamics. A calibration to market data is provided and used to get the optimal composition of the bull spread satisfying the cost of hedging restriction (...)

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Methodology and Computing in Applied Probability , 2023, vol. 25, num. 18, p. 1-18

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Articles publicats en revistes  (Econometria, Estadística i Economia Aplicada)

# metadata.dc.title[].value
Hedging at-the-money digital options near maturity