On the Approximation of Random Variables by Stochastic Integrals with Respect to Semimartingales
AbstractIn this paper it is shown that the space of stochastic integrals w.r. to a special semimartingal is closed and hence every square integrable random variable admits a best approximation in this space. In terms of financial economics this means that for every contingent claim there exists a hedging strategy minimizing the expected square of net loss.
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Bibliographic InfoPaper provided by University of Bonn, Germany in its series Discussion Paper Serie B with number 277.
Date of creation: Nov 1994
Date of revision:
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Web page: http://www.bgse.uni-bonn.de/index.php?id=517
stochastic integration; hedging; incomplete markets;
Find related papers by JEL classification:
- G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
- G13 - Financial Economics - - General Financial Markets - - - Contingent Pricing; Futures Pricing
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