Hedging Optimization Model Based on the Risk Control of WCVaR

Abstract

In this paper, using the worst-case conditional value-at-risk of hedging portfolio as optimal function, the hedging ratio is obtained. The distribution type of hedging return is not considered in this method. Then the problem which the subjective determination hedging return distribution causes hedging failure is solved. Considering tail loss of hedging portfolio and colligating the hedger's expectation and risk aversion, the model reflect the risk tolerance ability of hedger, which enhances the hedging effectiveness.