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      Buyer's quantile hedge portfolios in discrete-time trading

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      Author
      Pinar, M.Ç.
      Date
      2013
      Source Title
      Quantitative Finance
      Print ISSN
      14697688
      Volume
      13
      Issue
      5
      Pages
      729 - 738
      Language
      English
      Type
      Article
      Item Usage Stats
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      Abstract
      The problem of quantile hedging for American claims is studied from the perspective of the buyer of a contingent claim by minimizing the 'expected failure ratio'. After a general study of the problem in infinite-state spaces, we pass to finite dimensions and examine the properties of the resulting finite-dimensional optimization problems. In finite-state probability spaces we obtain a bilinear programming formulation that admits an exact linearization using binary exercise variables. Numerical results with S&P 500 index options demonstrate the computational viability of the formulations. © 2013 Copyright Taylor and Francis Group, LLC.
      Keywords
      American style derivative securities
      Asset pricing
      Optimization
      Risk management
      Permalink
      http://hdl.handle.net/11693/20976
      Published Version (Please cite this version)
      http://dx.doi.org/10.1080/14697688.2010.538075
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      • Department of Industrial Engineering 677
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