The Föllmer-Schweizer decomposition: Comparison and description

Tahir Choulli, Nele Vandaele and Michèle Vanmaele

Stochastic Processes and their Applications, 2010, vol. 120, issue 6, 853-872

Abstract: This paper proposes two main contributions concerning the Föllmer-Schweizer decomposition (called hereafter the FS-decomposition). First we completely elaborate the relationship between this decomposition and the Galtchouk-Kunita-Watanabe decomposition under the minimal martingale measure. The difference between these two decompositions is highlighted in a very practical example, and the martingale tools that enhance this difference are illustrated in the semimartingale framework as well. The second main contribution focuses on the description of the FS-decomposition using the predictable characteristics.

Keywords: Minimal; martingale; measure; Galtchouk-Kunita-Watanabe; decomposition; Follmer-Schweizer; decomposition; Incomplete; markets; Local; risk-minimization; Predictable; characteristics (search for similar items in EconPapers)
Date: 2010
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Citations: View citations in EconPapers (9)

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