Borak, SzymonSzymonBorakFengler, MatthiasMatthiasFenglerHärdle, Wolfgang K.Wolfgang K.Härdle2023-04-132023-04-132009-04-01https://www.alexandria.unisg.ch/handle/20.500.14171/76235The price of a barrier option depends on the shape of the entire implied volatility surface which is a high-dimensional dynamic object. Barrier options are hence exposed to non-trivial volatility risk. We extract the key risk factors of implied volatility surface fluctuations by means of a semiparametric factor model. Based on the factors we define a practical hedging procedure within a local volatility framework. The hedging performance is evaluated using DAX index options.envega hedgingjournal article