Dynamic Hedging Based on Fractional Order Stochastic Model with Memory Effect

Table 2

Comparison of the effectiveness results of in-sample hedging.

Methods			Std		Variance reduction over conventional MV method (%)
Unhedged	0		0.006190	0
MV	0.9348		0.001910	0.9049
Hedge Portfolio A:
SDE-MV	0.9315		0.001906	0.9053	0.42%
FSDE-MV	0.9159		0.001910	0.9049	0.00%
Hedge Portfolio B: (the best effectiveness)
SDE-MV	0.9315		0.001903	0.9056	0.94%
FSDE-MV	0.9159		0.001907	0.9050	0.52%
Hedge Portfolio C:
SDE-MV	0.9315		0.001905	0.9032	0.52%
FSDE-MV	0.9159		0.001910	0.9027	0.00%

Note: the effectiveness of the hedging models is evaluated by using the contemporaneous, one-day-later, and two-day-later prices, respectively, of which the respective results are reported in the hedge portfolios A, B, and C.