A new proposition on the martingale representation theorem and on the approximate hedging of contingent claim in mean-variance criterion

André Farber, Van Huu Nguyen and Quan-Hoang Vuong ()
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Van Huu Nguyen: Vietnam National University, Hanoi, Vietnam.

No 06-004.RS, Working Papers CEB from Université Libre de Bruxelles, Solvay Brussels School of Economics and Management, Centre Emile Bernheim (CEB)

Abstract: In this work we revisit the problem of the hedging of contingent claim using mean-square criterion. We prove that in incomplete market, some probability measure can be identified so that becomes -martingale under . This is in fact a new proposition on the martingale representation theorem. The new results also identify a weight function that serves to be an approximation to the Radon-Nikodým derivative of the unique neutral martingale measure.

Keywords: Martingale representation theorem; Hedging; Contingent claim; Mean-variance. (search for similar items in EconPapers)
JEL-codes: G12 G13 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-fin
Date: 2006-04
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http://www.solvay.edu/EN/Research/Bernheim/documents/wp06004.pdf First version, 2006 (application/pdf)

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Persistent link: http://EconPapers.repec.org/RePEc:sol:wpaper:06-004

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