Abstract

This paper presents the analysis of China financial market and method of hedging optimization for compute expected shortfall risk based on attitude towards risk under the Black–Scholes model. The application demonstrates an example of the efficient hedging strategy for call option in the Black–Scholes model based on geometric Brownian motion with loss function. The data of illustrations which applies in China financial market. The resulting efficient hedges allow the investor to interpolate in a systematic way extreme of partial hedging (between no hedge and full hedge) that depend on the accepted level of shortfall risk.