Abstract

This thesis explores hedging strategies for European-type derivatives under the non-causal AR(1) Cauchy model. Recently, such non-causal models have raised much attention in the finance literature due to their ability to replicate bubbles often observed in the cryptocurrency market, as well as their tractability for pricing standard European options. However, these discrete-time models are incomplete, meaning that it is impossible to perfectly replicate a derivative's payoff in such a market. This thesis explores the use of quadratic hedging approaches to manage the risk of a derivative trader.