Mean square optimal hedging with non-uniform rebalancing intervals

Abstract

This paper proposes a method of discrete hedging by extending the MSOH (mean square optimal hedging) problem. In the proposed method, the risk of option sellers is minimized in terms of the mean square hedging error as in the MSOH problem, while it is allowed to rebalance with non-uniform intervals as opposed to the uniform assumption in the MSOH problem. The benefit of the extra freedom is demonstrated via numerical simulations.