{"about":{"site":"https://codewithpapers.app","non_affiliation":"Code with Papers and Syntology are not affiliated with, endorsed by, or sponsored by Papers with Code, Meta, or the pwc-archive mirror.","licence":"CC BY-SA 4.0","licence_url":"https://creativecommons.org/licenses/by-sa/4.0/legalcode","attribution":"https://codewithpapers.app/attribution","modified":"archive material modified by Syntology; see the attribution page"},"url":"/paper/option-pricing-and-hedging-for-discrete-time","title":"Option Pricing and Hedging for Discrete Time Autoregressive Hidden Markov Model","arxiv_id":"1707.02019","date":"2017-07-07","proceeding":null,"authors":["Massimo Caccia","Bruno Rémillard"],"abstract":"In this paper we solve the discrete time mean-variance hedging problem when\nasset returns follow a multivariate autoregressive hidden Markov model. Time\ndependent volatility and serial dependence are well established properties of\nfinancial time series and our model covers both. To illustrate the relevance of\nour proposed methodology, we first compare the proposed model with the\nwell-known hidden Markov model via likelihood ratio tests and a novel\ngoodness-of-fit test on the S\\&P 500 daily returns. Secondly, we present\nout-of-sample hedging results on S\\&P 500 vanilla options as well as a trading\nstrategy based on theoretical prices, which we compare to simpler models\nincluding the classical Black-Scholes delta-hedging approach.","url_abs":"http://arxiv.org/abs/1707.02019v1","url_pdf":"http://arxiv.org/pdf/1707.02019v1.pdf","source":{"archive":"pwc-archive (Hugging Face), CC BY-SA 4.0","snapshot":"2025-07-28","licence_url":"https://creativecommons.org/licenses/by-sa/4.0/legalcode","row_kind":"abstracts"},"code_links":[{"paper_slug":"option-pricing-and-hedging-for-discrete-time","repo_url":"https://github.com/optimass/Optimal_hedging_ARHMM","is_official":0,"mentioned_in_paper":0,"mentioned_in_github":1,"framework":"none","reach":null}],"tasks":[{"task_slug":"time-series-1","task_name":"Time Series"},{"task_slug":"time-series","task_name":"Time Series Analysis"}],"methods":[],"datasets_introduced":[],"methods_introduced":[],"results":[],"syntology":{"atlas_url":null,"mcp":null,"developers":"https://syntology.ai/developers"},"arxiv_metadata":null,"syntology_extracted_results":null}