Mean Variance Hedging in a General Jump Model
AbstractWe consider the mean-variance hedging of a contingent claim H when the discounted price process S is an [image omitted]-valued quasi-left continuous semimartingale with bounded jumps. We relate the variance-optimal martingale measure (VOMM) to a backward semimartingale equation (BSE) and show that the VOMM is equivalent to the original measure P if and only if the BSE has a solution. For a general contingent claim, we derive an explicit solution of the optimal strategy and the optimal cost of the mean-variance hedging by means of another BSE and an appropriate predictable process δ
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Bibliographic InfoArticle provided by Taylor & Francis Journals in its journal Applied Mathematical Finance.
Volume (Year): 17 (2010)
Issue (Month): 1 ()
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Web page: http://www.tandfonline.com/RAMF20
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