TITLE:
The Optimal Hedging Ratio for Contingent Claims Based on Different Risk Aversions
AUTHORS:
Jianhua Guo
KEYWORDS:
Risk Aversion, Contingent Claim, Hedging, The Optimal Hedging Ratio
JOURNAL NAME:
Open Journal of Business and Management,
Vol.7 No.2,
March
7,
2019
ABSTRACT: Based
on utility theory, this paper firstly combined different utility functions with
risk aversion coefficient and constructed different kinds of optimizing problems for hedgers to hedge for
stochastic-payment-typed contingent claim, and then, by the aid of
dynamic programming theory, effective multi-stage hedging strategy is proposed
for different risk-averse hedgers. Lastly, the research results that the
optimal hedging ratios for three kinds of utility functions are equivalent and
do not relate to the risk aversion coefficient.