A guided tour through quadratic hedging approaches

Martin Schweizer

No 1999,96, SFB 373 Discussion Papers from Humboldt University of Berlin, Interdisciplinary Research Project 373: Quantification and Simulation of Economic Processes

Abstract: This paper gives an overview of results and developments in the area of pricing and hedging contingent claims in an incomplete market by means of a quadratic criterion. We first present the approach of risk-minimization in the case where the underlying discounted price process X is a local martingale. We then discuss the extension to local risk-minimization when X is a semimartingale and explain the relations to the Föllmer-Schweizer decomposition and the minimal martingale measure. Finally we study mean-variance hedging, the variance-optimal martingale measure and the connections to closeness properties of spaces of stochastic integrals.

Keywords: risk-minimization; locally risk-minimizing; mean-variance hedging; minimal martingale measure; variance-optimal martingale measure; Föllmer-Schweizer decomposition; quadratic hedging criteria; incomplete markets (search for similar items in EconPapers)
JEL-codes: C60 G10 (search for similar items in EconPapers)
Date: 1999
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (24)

Downloads: (external link)
https://www.econstor.eu/bitstream/10419/61765/1/722916531.pdf (application/pdf)

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:zbw:sfb373:199996

Access Statistics for this paper

More papers in SFB 373 Discussion Papers from Humboldt University of Berlin, Interdisciplinary Research Project 373: Quantification and Simulation of Economic Processes Contact information at EDIRC.
Bibliographic data for series maintained by ZBW - Leibniz Information Centre for Economics ().