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%T Risk minimization in stochastic volatility models: model risk and empirical performance %A Poulsen, Rolf %A Schenk-Hoppé, Klaus Reiner %A Ewald, Christian-Oliver %J Quantitative Finance %N 6 %P 693-704 %V 9 %D 2009 %K Locally risk-minimizing delta hedge; Stochastic volatility; Model risk; Empirical hedge performance %= 2011-02-23T15:38:00Z %~ http://www.peerproject.eu/ %> https://nbn-resolving.org/urn:nbn:de:0168-ssoar-221553 %X In this paper the performance of locally risk-minimizing delta hedge strategies for European options in stochastic volatility models is studied from an experimental as well as from an empirical perspective. These hedge strategies are derived for a large class of diffusion-type stochastic volatility models, and they are as easy to implement as usual delta hedges. Our simulation results on model risk show that these risk-minimizing hedges are robust with respect to uncertainty and misconceptions about the underlying data generating process. The empirical study, which includes the U.S. sub-prime crisis period, documents that in equity markets risk-minimizing delta hedges consistently outperform usual delta hedges by approximately halving the standard deviation of the profit-and-loss ratio. %C GBR %G en %9 journal article %W GESIS - http://www.gesis.org %~ SSOAR - http://www.ssoar.info