European‐Type Contingent Claims in an Incomplete Market with Constrained Wealth and Portfolio

Jiongmin Yong

Mathematical Finance, 1999, vol. 9, issue 4, 387-412

Abstract: This paper considers the problem of hedgeability and replicability of European‐type contingent claims in an incomplete market with the wealth and the portfolio possibly being constrained. For the case of no constraint, using the idea of a Four Step Scheme (Ma, Protter, and Yong 1994), we prove the replicability of a class of contingent claims (including European call and put options) without assuming ad hoc technical conditions. For the case with the wealth and portfolio being constrained, several positive and negative results concerning hedgeability and replicability are presented.

Date: 1999
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