Risk minimization under transaction costs
We study the general problem of an agent wishing to minimize the risk of a position at a fixed date. The agent trades in a market with a risky asset, with incomplete information, proportional transaction costs, and possibly constraints on strategies. In particular, this framework includes the problems of hedging contingent claims and maximizing utility from wealth. We obtain a minimization problem on a space of predictable processes with finite variation. Borrowing a technique from Calculus of Variation, on this space we look for a convergence which makes minimizing sequences relatively compact, and risk lower semicontinuous. For a class of convex decreasing risk functionals, we show the existence of optimal strategies. Examples include the problems of shortfall minimization, utility maximization, and minimization ofcoherent risk measures.
If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.
Volume (Year): 6 (2002)
Issue (Month): 1 ()
|Note:||received: March 2000; final version received: February 2001|
|Contact details of provider:|| Web page: http://www.springerlink.com/content/101164/|
|Order Information:||Web: http://link.springer.de/orders.htm|
When requesting a correction, please mention this item's handle: RePEc:spr:finsto:v:6:y:2002:i:1:p:91-113. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Sonal Shukla)or (Christopher F Baum)
If references are entirely missing, you can add them using this form.