LAUSR

Abstract This paper studied the optimal self-financing hedging strategies under the minimum shortfall risk criterion. By virtue of the Monte Carlo simulation, thousands of the underlying asset’s price paths are generated and the expected shortfall is estimated with the averaged terminal shortfall on all simulated price paths. Then, the Particle swarm optimization method is adopted to approximate the hedging positions. Compared with present researches, our numerical computing method can overcome the shortcomings that no explicit expressions about hedging strategies exist under the minimum shortfall risk criterion, And the empirically researching results show that, the higher strategy-adjusting-frequency may more excellently resist the financial market’s fluctuating risk and there is a reverse relationship between European call option’s strike prices and the hedging positions.