New model improves hedging performance in financial markets, boosting investor confidence.
The article explores how different models can be used to hedge against changes in market volatility. The researchers found that traditional models often over-hedge, leading to poor performance in hedging strategies. However, a new approach called stochastic local volatility allows for better pricing and hedging. By analyzing seven models on the SP500 index skew, the researchers showed that this new framework improves hedging performance.