Titolo: Sandwiched Volterra volatility models and hedging
Abstract:
We present the Sandwiched Volterra Volatility (SVV) model and we discuss some of its characteristic properties.
We then move to consider hedging and consider the explicit computation of quadratic hedging strategies.
While the theoretical solution is well-known in terms of the non-anticipating derivative for all square integrable claims, the fact that these models are typically non-Markovian provides a concrete difficulty in the direct computation of conditional expectations at the core of the explicit hedging strategy. To overcome this difficulty, we propose a Markovian approximation of the model which stems from an adequate approximation of the kernel in the Volterra noise. We show some numerical simulations performed with different methods.