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Some applications of L2-hedging with a non-negative wealth process

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  • Ralf Korn

Abstract

We consider the problem of L2-hedging of contingent claims in diffusion type models for securities markets. In contrast to a recent paper of Schweizer (1994) we insist on a non-negative wealth process corresponding to the optimal hedge portfolio. For this reason the usual projection methods cannot be applied. We give some applications of L2-hedging in this setting including hedging under constraints, a problem of approximating the wealth process of a richer investor and a mean-variance version of it.

Suggested Citation

  • Ralf Korn, 1997. "Some applications of L2-hedging with a non-negative wealth process," Applied Mathematical Finance, Taylor & Francis Journals, vol. 4(1), pages 65-79.
    • Handle: RePEc:taf:apmtfi:v:4:y:1997:i:1:p:65-79
    DOI: 10.1080/135048697334836
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    Cited by:

    1. Andrew Heunis, 2015. "Quadratic minimization with portfolio and terminal wealth constraints," Annals of Finance, Springer, vol. 11(2), pages 243-282, May.
    2. Jia-Wen Gu & Mogens Steffensen, 2015. "Optimal Portfolio Liquidation and Dynamic Mean-variance Criterion," Papers 1510.09110, arXiv.org.
    3. Jarner, Søren Fiig & Kronborg, Morten Tolver, 2016. "Entrance times of random walks: With applications to pension fund modeling," Insurance: Mathematics and Economics, Elsevier, vol. 67(C), pages 1-20.
    4. Vitalii Makogin & Alexander Melnikov & Yuliya Mishura, 2017. "On Mean–Variance Hedging Under Partial Observations And Terminal Wealth Constraints," International Journal of Theoretical and Applied Finance (IJTAF), World Scientific Publishing Co. Pte. Ltd., vol. 20(05), pages 1-21, August.

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