Options, coverage and diffusion-jump processes: An application to GCARSO titles

Abstract

We present two models for hedging European options on an underlying asset driven by a mixed diffusion-jump process. The first model, values the option as the average of option prices hedging sequential jumps. In the second model, the option price is determined by minimizing the variance of the portfolio value. In particular, we develop hedging strategies for the case of GCARSO shares.