%0 Journal Article
%T Local risk-minimization for Barndorff-Nielsen and Shephard models with volatility risk premium
%A Takuji Arai
%J Quantitative Finance
%D 2015
%I arXiv
%X We derive representations of local risk-minimization of call and put options for Barndorff-Nielsen and Shephard models: jump type stochastic volatility models whose squared volatility process is given by a non-Gaussian rnstein-Uhlenbeck process. The general form of Barndorff-Nielsen and Shephard models includes two parameters: volatility risk premium $\beta$ and leverage effect $\rho$. Arai and Suzuki (2015, arxiv:1503.08589) dealt with the same problem under constraint $\beta=-\frac{1}{2}$. In this paper, we relax the restriction on $\beta$; and restrict $\rho$ to $0$ instead. We introduce a Malliavin calculus under the minimal martingale measure to solve the problem.
%U http://arxiv.org/abs/1506.01477v1