VARIANCE-OPTIMAL HEDGING IN DISCRETE-TIME

Authors
SCHWEIZER M
Citation
M. Schweizer, VARIANCE-OPTIMAL HEDGING IN DISCRETE-TIME, Mathematics of operations research, 20(1), 1995, pp. 1-32
Citations number
18
Categorie Soggetti
Operatione Research & Management Science",Mathematics,"Operatione Research & Management Science",Mathematics
Journal title
Mathematics of operations research → ACNP
ISSN journal
0364765X
Volume
20
Issue
1
Year of publication
1995
Pages
1 - 32
Database
ISI
SICI code
0364-765X(1995)20:1<1:VHID>2.0.ZU;2-N
Abstract
We solve the problem of approximating in L(2) a given random variable H by stochastic integrals G(T)(I) of a given discrete-time process X. We interpret H as a contingent claim to be paid out at time T, X as th e price evolution of some risky asset in a financial market. and G(I) as the cumulative gains from trade using the hedging strategy I. As an application. we determine the variance-optimal strategy which minimiz es the variance of the net loss H - G(T)(I) over ail strategies I.