# On infinite-horizon minimum-cost hedging under cone constraints

*Kevin Huang* ()

No 2000-22, Working Papers from Utah State University, Department of Economics

**Abstract:**
We prove there exists and analyze a strategy that minimizes the cost of hedging a liability stream in infinite-horizon incomplete security markets with a type of constraints that feasible portfolio strategies form a convex cone. We provide a theorem that extends Stiemke Lemma to over cone domains and we use the result to construct a series of primal-dual problems. Applying stochastic duality theory, dynamic programming technique and the theory of convex analysis to the dual formulation, we decompose the infinite-horizon dynamic hedging problem into one-period static hedging problems such that optimal portfolios in different events can be solved for independently.

**Keywords:** Infinite horizon; minimum-cost hedging; cone constraints (search for similar items in EconPapers)

**JEL-codes:** C61 C63 G10 G20 (search for similar items in EconPapers)

**Pages:** 21 pages

**New Economics Papers:** this item is included in nep-fin

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ftp://repec.bus.usu.edu/RePEc/usu/pdf/ERI2000-22.pdf First version, 2000 (application/pdf)

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Journal Article: On infinite-horizon minimum-cost hedging under cone constraints (2002)

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**Persistent link:** https://EconPapers.repec.org/RePEc:usu:wpaper:2000-22

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