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Nonquadratic Local Risk-Minimization for Hedging Contingent Claims in Incomplete Markets

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  • Frédéric Abergel

    ()
    (MAS - Mathématiques Appliquées aux Systèmes - EA 4037 - Ecole Centrale Paris, FiQuant - Chaire de finance quantitative - Ecole Centrale Paris)

  • Nicolas Millot

    (MAS - Mathématiques Appliquées aux Systèmes - EA 4037 - Ecole Centrale Paris, FiQuant - Chaire de finance quantitative - Ecole Centrale Paris)

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    Abstract

    Local risk minimization is studied for the hedging of derivatives - a general (non quadratic) risk criterion is studied, and the optimality conditions are derived.

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    File URL: http://hal.archives-ouvertes.fr/docs/00/62/08/43/PDF/SIAM.pdf
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    Bibliographic Info

    Paper provided by HAL in its series Post-Print with number hal-00620843.

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    Date of creation: 24 May 2011
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    Publication status: Published, SIAM Journal on Financial Mathematics, 2011, SIAM J. Finan. Math. 2, 342 (2011)
    Handle: RePEc:hal:journl:hal-00620843

    Note: View the original document on HAL open archive server: http://hal.archives-ouvertes.fr/hal-00620843/en/
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    1. Black, Fischer & Scholes, Myron S, 1973. "The Pricing of Options and Corporate Liabilities," Journal of Political Economy, University of Chicago Press, vol. 81(3), pages 637-54, May-June.
    2. 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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    Cited by:
    1. Frédéric Abergel, 2013. "Comparing quadratic and non-quadratic local risk minimization for the hedging of contingent claims," Working Papers hal-00771528, HAL.
    2. Frédéric Abergel & Grégoire Loeper, 2013. "Pricing and hedging contingent claims with liquidity costs and market impact," Working Papers hal-00802402, HAL.

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