On quadratic hedging in continuous time

Huyên Pham

Mathematical Methods of Operations Research, 2000, vol. 51, issue 2, 315-339

Abstract: We review the main results in the theory of quadratic hedging in a general incomplete model of continuous trading with semimartingale price process. The objective is to hedge contingent claims by using portfolio strategies. We describe two types of criteria: the so-called (local) risk-minimization and the mean-variance approaches. From a mathematical viewpoint, these optimization problems lead to new variants of decomposition theorems in stochastic analysis. Copyright Springer-Verlag Berlin Heidelberg 2000

Keywords: Key words: Incomplete market; quadratic hedging; optimization; semimartingales; stochastic integrals; Kunita-Watanabe projection; L2-projection; minimal martingale measure; variance-optimal martingale measure (search for similar items in EconPapers)
Date: 2000
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Citations: View citations in EconPapers (30)

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Persistent link: https://EconPapers.repec.org/RePEc:spr:mathme:v:51:y:2000:i:2:p:315-339

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DOI: 10.1007/s001860050091

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