SOME REMARKS ON MEAN-VARIANCE HEDGING FOR DISCONTINUOUS ASSET PRICE PROCESSES

Takuji Arai ()
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Takuji Arai: Faculty of Economics, Keio University, 2-15-45, Mita, Minato-Ku, Tokyo, 108-8345, Japan

International Journal of Theoretical and Applied Finance (IJTAF), 2005, vol. 08, issue 04, 425-443

Abstract: Mean-variance hedging for the discontinuous semimartingale case is obtained under some assumptions related to the variance-optimal martingale measure. In the present paper, two remarks on it are discussed. One is an extension of Hou–Karatzas' duality approach from the continuous case to discontinuous. Another is to prove that there is the consistency with the case where the mean-variance trade-off process is continuous and deterministic. In particular, one-dimensional jump diffusion models are discussed as simple examples.

Keywords: Mean-variance hedging; variance-optimal martingale measure; jump diffusion (search for similar items in EconPapers)
Date: 2005
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DOI: 10.1142/S0219024905003062

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