Asymptotic analysis of utility-based hedging strategies for small number of contingent claims

D. Kramkov and Mirela Sirbu

Stochastic Processes and their Applications, 2007, vol. 117, issue 11, 1606-1620

Abstract: We study the linear approximation of utility-based hedging strategies for small number of contingent claims. We show that this approximation is actually a mean-variance hedging strategy under an appropriate choice of a numéraire and a risk-neutral probability. In contrast to previous studies, we work in the general framework of a semimartingale financial model and a utility function defined on the positive real line.

Keywords: Incomplete; markets; Utility-based; hedging; Mean-variance; hedging; Risk-tolerance; wealth; process; Contingent; claim; Numeraire (search for similar items in EconPapers)
Date: 2007
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Citations: View citations in EconPapers (14)

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