Mean-variance Hedging Under Partial Information
AbstractWe consider the mean-variance hedging problem under partial Information. The underlying asset price process follows a continuous semimartingale and strategies have to be constructed when only part of the information in the market is available. We show that the initial mean variance hedging problem is equivalent to a new mean variance hedging problem with an additional correction term, which is formulated in terms of observable processes. We prove that the value process of the reduced problem is a square trinomial with coefficients satisfying a triangle system of backward stochastic differential equations and the filtered wealth process of the optimal hedging strategy is characterized as a solution of a linear forward equation.
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Bibliographic InfoPaper provided by arXiv.org in its series Papers with number math/0703424.
Date of creation: Mar 2007
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- Martin Schweizer, 1994. "Risk-Minimizing Hedging Strategies Under Restricted Information," Mathematical Finance, Wiley Blackwell, vol. 4(4), pages 327-342.
- Martin Schweizer & Christophe Stricker & Freddy Delbaen & Pascale Monat & Walter Schachermayer, 1997. "Weighted norm inequalities and hedging in incomplete markets," Finance and Stochastics, Springer, vol. 1(3), pages 181-227.
- Norbert Hofmann & Eckhard Platen & Martin Schweizer, 1992.
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Wiley Blackwell, vol. 2(3), pages 153-187.
- N. Hofmann & E. Platen & M. Schweizer, 1992. "Option Pricing under Incompleteness and Stochastic Volatility," Discussion Paper Serie B 209, University of Bonn, Germany.
- Rheinländer, Thorsten & Schweizer, Martin, 1997. "On L2-projections on a space of stochastic integrals," SFB 373 Discussion Papers 1997,25, Humboldt University of Berlin, Interdisciplinary Research Project 373: Quantification and Simulation of Economic Processes.
- David Heath & Eckhard Platen & Martin Schweizer, 2001. "A Comparison of Two Quadratic Approaches to Hedging in Incomplete Markets," Mathematical Finance, Wiley Blackwell, vol. 11(4), pages 385-413.
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