We study the problem of minimizing the expected discounted loss
E[e(-)integral(o)(T) (r(u)du) (C - X-x,X-pi(T))(+)]
when hedging a liability C at time t = T, using an admissible portfolio str
ategy pi(.) and starting with initial wealth x. The existence of an optimal
solution is established in the context of continuous-time Ito process inco
mplete market models, by studying an appropriate dual problem. It is shown
that the optimal strategy is of the form of a knock-out option with payoff
C, where the domain of the knock-out depends on the value of the optimal du
al variable. We also discuss a dynamic measure for the risk associated with
the liability C, defined as the supremum over different scenarios of the m
inimal expected loss of hedging C.