Risk minimization under transaction costs

Paolo Guasoni ()
Additional contact information
Paolo Guasoni: Bank of Italy, Research Department, Via Nazionale, 91, 00184 Roma, Italy Manuscript

Finance and Stochastics, 2002, vol. 6, issue 1, 113 pages

Abstract: We study the general problem of an agent wishing to minimize the risk of a position at a fixed date. The agent trades in a market with a risky asset, with incomplete information, proportional transaction costs, and possibly constraints on strategies. In particular, this framework includes the problems of hedging contingent claims and maximizing utility from wealth. We obtain a minimization problem on a space of predictable processes with finite variation. Borrowing a technique from Calculus of Variation, on this space we look for a convergence which makes minimizing sequences relatively compact, and risk lower semicontinuous. For a class of convex decreasing risk functionals, we show the existence of optimal strategies. Examples include the problems of shortfall minimization, utility maximization, and minimization ofcoherent risk measures.

Keywords: Transaction costs; incomplete markets; risk minimization; coherent risk measures; constraints (search for similar items in EconPapers)
JEL-codes: G12 G13 (search for similar items in EconPapers)
Date: 2002-01-18
Note: received: March 2000; final version received: February 2001
References: Add references at CitEc
Citations: View citations in EconPapers (5)

Downloads: (external link)
http://link.springer.de/link/service/journals/00780/papers/2006001/20060091.pdf (application/pdf)
Access to the full text of the articles in this series is restricted

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:spr:finsto:v:6:y:2002:i:1:p:91-113

Ordering information: This journal article can be ordered from
http://www.springer. ... ance/journal/780/PS2

Access Statistics for this article

Finance and Stochastics is currently edited by M. Schweizer

More articles in Finance and Stochastics from Springer
Bibliographic data for series maintained by Sonal Shukla () and Springer Nature Abstracting and Indexing ().