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Research Report FMRR99-001
Numerical Comparison of Local Risk-Minimisation and Mean-Variance
David Heath, Eckhard Platen and Martin Schweizer
Abstract:
This paper provides comparative results on prices,
hedging strategies and risks for local risk-minimisation and
mean-variance hedging for a class of stochastic volatility models.
A pricing and hedging framework is established for both approaches
with detailed analysis undertaken for the well-known Heston and
Stein/Stein stochastic volatility models. These illustrate
important quantitative differences between the two approaches.
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