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Entropy 2018, 20(4), 248; https://doi.org/10.3390/e20040248

Hedging for the Regime-Switching Price Model Based on Non-Extensive Statistical Mechanics

1,2,* , 3
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1,2
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4
and
5
1
College of Finance and Mathematics, West Anhui University, Lu’an 237012, China
2
Financial Risk Intelligent Control and Prevention Institute of West Anhui University, Lu’an 237012, China
3
College of Mathematics and Computer Science, Gannan Normal University, Ganzhou 341000, China
4
School of Mathematics and Information Sciences, Henan Normal University, Xinxiang 453002, China
5
School of Economics and Management, Nanjing University of Science and Technology, Nanjing 210094, China
*
Author to whom correspondence should be addressed.
Received: 13 March 2018 / Revised: 1 April 2018 / Accepted: 3 April 2018 / Published: 3 April 2018
(This article belongs to the Special Issue Nonadditive Entropies and Complex Systems)
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Abstract

To describe the movement of asset prices accurately, we employ the non-extensive statistical mechanics and the semi-Markov process to establish an asset price model. The model can depict the peak and fat tail characteristics of returns and the regime-switching phenomenon of macroeconomic system. Moreover, we use the risk-minimizing method to study the hedging problem of contingent claims and obtain the explicit solutions of the optimal hedging strategies. View Full-Text
Keywords: non-extensive statistics; hedging; risk-minimizing approach; Föllmer–Schweizer decomposition non-extensive statistics; hedging; risk-minimizing approach; Föllmer–Schweizer decomposition
This is an open access article distributed under the Creative Commons Attribution License which permits unrestricted use, distribution, and reproduction in any medium, provided the original work is properly cited (CC BY 4.0).
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Zhao, P.; Pan, J.; Zhou, B.; Wang, J.; Song, Y. Hedging for the Regime-Switching Price Model Based on Non-Extensive Statistical Mechanics. Entropy 2018, 20, 248.

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