Hedging in a market with jumps - an FBSDE approach
Evelina Shamarova, Rui S\'a Pereira
TL;DR
This paper introduces a novel FBSDE-based model for hedging in markets with jumps, specifically designed for large investors, enabling the determination of optimal hedging strategies considering jump risks.
Contribution
It develops a new FBSDE framework driven by Teugels martingales that incorporates jumps in stock prices and facilitates optimal hedging for large investors.
Findings
Model accounts for jumps in stock prices.
Enables computation of optimal hedging strategies.
Uses Teugels martingales in FBSDEs.
Abstract
We propose a model for hedging in a market with jumps for a large investor. The dynamics of the stock prices and the value process is governed by forward-backward SDEs driven by Teugels martingales. Unlike known FBSDE market models, ours accounts for jumps in stock prices. Moreover, it allows to find an optimal hedging strategy.
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