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Completeness and Hedging in a Lévy Bond Market

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Stochastic Analysis with Financial Applications

Part of the book series: Progress in Probability ((PRPR,volume 65))

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Abstract

In this paper we analyze the completeness problem in a bond market where the short rate is driven by a non-homogeneous Lé process. Even though it is known that under certain conditions we have a kind of uniqueness of the risk neutral measure, little is known about how to hedge in this market. We elucidate that perfect replication formulas are not, in general, possible to obtain and an approximate hedging, in an L2 sense, is then the appropriate approach.

Mathematics Subject Classification (2000). 60H30, 91B28, 60G51.

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References

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Author information

Authors and Affiliations

  1. Universitat de Barcelona, Gran Via de les Corts Catalanes 585, E-08007, Barcelona, Spain

    José M. Corcuera

Authors
  1. José M. Corcuera
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Corresponding author

Correspondence to José M. Corcuera .

Editor information

Editors and Affiliations

  1. Japan Science and Technology Agency, Department of Mathematical Sciences, Ritsumeikan University, 1-1-1 Nojihigashi, Kusatsu, Shiga, 525-8577, Japan

    Arturo Kohatsu-Higa

  2. Division of Mathematical Sciences, Nanyang Technological University, SPMS-MAS-05-43, 21 Nanyang Link, Singapore, 637371, Singapore

    Nicolas Privault

  3. Department of Mathematics, National Central University, No.300, Zhongda Rd., Zhongli City, 320, Taiwan R.O.C.

    Shuenn-Jyi Sheu

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Corcuera, J.M. (2011). Completeness and Hedging in a Lévy Bond Market. In: Kohatsu-Higa, A., Privault, N., Sheu, SJ. (eds) Stochastic Analysis with Financial Applications. Progress in Probability, vol 65. Springer, Basel. https://doi.org/10.1007/978-3-0348-0097-6_18

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