European-type contingent claims in an incomplete market with constrained wealth and portfolio

This paper considers the problem of hedgeability and replicability of Europ ean-type contingent claims in an incomplete market with the wealth and the portfolio possibly being constrained. For the case of no constraint, using the idea of a Four Step Scheme (Ma, Protter, and Yong 1994), we prove the r eplicability of a class of contingent claims (including European call and p ut options) without assuming ad hoc technical conditions. For the case with the wealth and portfolio being constrained, several positive and negative results concerning hedgeability and replicability are presented.