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Quantile hedging

Author

Listed:
  • Hans FÃllmer

    () (Humboldt-UniversitÄt zu Berlin, Institut fØr Mathematik, Unter den Linden 6, D-10099 Berlin, Germany Manuscript)

  • Peter Leukert

    () (Humboldt-UniversitÄt zu Berlin, Institut fØr Mathematik, Unter den Linden 6, D-10099 Berlin, Germany Manuscript)

Abstract

In a complete financial market every contingent claim can be hedged perfectly. In an incomplete market it is possible to stay on the safe side by superhedging. But such strategies may require a large amount of initial capital. Here we study the question what an investor can do who is unwilling to spend that much, and who is ready to use a hedging strategy which succeeds with high probability.

Suggested Citation

  • Hans FÃllmer & Peter Leukert, 1999. "Quantile hedging," Finance and Stochastics, Springer, vol. 3(3), pages 251-273.
  • Handle: RePEc:spr:finsto:v:3:y:1999:i:3:p:251-273
    Note: received: January 1998; final version received: August 1998
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    More about this item

    Keywords

    Hedging; superhedging; Neyman Pearson lemma; stochastic volatility; value at risk;

    JEL classification:

    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G13 - Financial Economics - - General Financial Markets - - - Contingent Pricing; Futures Pricing
    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty

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