Variance-Optimal Hedging for the Process Based on Non-Extensive Statistical Mechanics and Poisson Jumps
Pan Zhaoa,b,c and Qingxian Xiao a
aBusiness School, University of Shanghai for Science and Technology, Shanghai, China
bCollege of Finance and Mathematics, West Anhui University, Lu'an, Anhui, China
cFinancial Risk Intelligent Control and Prevention Institute of West Anhui University, Lu'an, Anhui, China
Received: December 30, 2015; Revised version: March 28, 2016; In final form: April 4, 2016
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In this study, we consider a minimum-variance hedging problem in an incomplete market, in which the risky asset is driven by the process based on non-extensive statistical mechanics and Poisson jumps. Using the stochastic control theory and backward stochastic differential equation method, we obtain a closed-form solution for the minimum-variance hedging policy.

DOI: 10.12693/APhysPolA.129.1252
PACS numbers: 89.65.Gh