Quantile Hedging For Multiple Assets Derivatives
The problem of quantile hedging for multiple assets derivatives in the Black-Scholes model with correlation is considered. Explicit formulas for the probability maximizing function and the cost reduction function are derived. Applicability of the results for the widely traded derivatives as digital, quantos, outperformance and spread options is shown. As recent events on the market have shown the risk appearing in pricing of financial contracts should be more thoroughly surveyed. Although the problem of minimizing risk is widely studied in the literature, the great majority of the results do not meet the expectations of practitioners who are interested in straightforward applications.