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Hedging diffusion processes by local risk minimization with applications to index tracking

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  • Colwell, David
  • El-Hassan, Nadima
  • Kang Kwon, Oh

Abstract

The solution to the problem of hedging contingent claims by local risk-minimisation has been considered in detail in Follmer and Sondermann (1986), Follmer and Schweizer (1991) and Schweizer (1991). However, given a stochastic process Xt and tau1

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Article provided by Elsevier in its journal Journal of Economic Dynamics and Control.

Volume (Year): 31 (2007)
Issue (Month): 7 (July)
Pages: 2135-2151

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Handle: RePEc:eee:dyncon:v:31:y:2007:i:7:p:2135-2151

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  1. Martin Schweizer & HuyËn Pham & (*), Thorsten RheinlÄnder, 1998. "Mean-variance hedging for continuous processes: New proofs and examples," Finance and Stochastics, Springer, vol. 2(2), pages 173-198.
  2. Schweizer, Martin, 1991. "Option hedging for semimartingales," Stochastic Processes and their Applications, Elsevier, vol. 37(2), pages 339-363, April.
  3. Harry Markowitz, 1952. "Portfolio Selection," Journal of Finance, American Finance Association, vol. 7(1), pages 77-91, 03.
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Cited by:
  1. Frey, Rüdiger & Backhaus, Jochen, 2010. "Dynamic hedging of synthetic CDO tranches with spread risk and default contagion," Journal of Economic Dynamics and Control, Elsevier, vol. 34(4), pages 710-724, April.
  2. Canakgoz, N.A. & Beasley, J.E., 2009. "Mixed-integer programming approaches for index tracking and enhanced indexation," European Journal of Operational Research, Elsevier, vol. 196(1), pages 384-399, July.

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