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Mean–variance hedging under transaction costs

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  • Eric Beutner

Abstract

The paper proposes a new approach to the mean–variance-hedging problem under transaction costs. This approach is based on the idea of dividing the gain functional into two parts. One part representing the gains resulting from a pure buying strategy, and the other part representing the gains resulting from a pure selling strategy. The problem will be studied in a general incomplete market in discrete time. Some technical assumptions such as the RAS condition are excluded. Copyright Springer-Verlag 2007

Suggested Citation

  • Eric Beutner, 2007. "Mean–variance hedging under transaction costs," Mathematical Methods of Operations Research, Springer;Gesellschaft für Operations Research (GOR);Nederlands Genootschap voor Besliskunde (NGB), vol. 65(3), pages 539-557, June.
    • Handle: RePEc:spr:mathme:v:65:y:2007:i:3:p:539-557
    DOI: 10.1007/s00186-006-0134-9
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    References listed on IDEAS

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    1. Martin Schweizer, 1995. "Variance-Optimal Hedging in Discrete Time," Mathematics of Operations Research, INFORMS, vol. 20(1), pages 1-32, February.
    2. Lamberton, Damien & Pham, Huyên & Schweizer, Martin, 1998. "Local risk-minimization under transaction costs," SFB 373 Discussion Papers 1998,18, Humboldt University of Berlin, Interdisciplinary Research Project 373: Quantification and Simulation of Economic Processes.
    3. Damien Lamberton & Huyên Pham & Martin Schweizer, 1998. "Local Risk-Minimization Under Transaction Costs," Mathematics of Operations Research, INFORMS, vol. 23(3), pages 585-612, August.
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    Cited by:

    1. Panagiotis Christodoulou & Nils Detering & Thilo Meyer-Brandis, 2018. "Local Risk-Minimization With Multiple Assets Under Illiquidity With Applications In Energy Markets," International Journal of Theoretical and Applied Finance (IJTAF), World Scientific Publishing Co. Pte. Ltd., vol. 21(04), pages 1-44, June.
    2. Arti Singh & Dharmaraja Selvamuthu, 2017. "Mean–variance optimal trading problem subject to stochastic dominance constraints with second order autoregressive price dynamics," Mathematical Methods of Operations Research, Springer;Gesellschaft für Operations Research (GOR);Nederlands Genootschap voor Besliskunde (NGB), vol. 86(1), pages 29-69, August.
    3. Panagiotis Christodoulou & Nils Detering & Thilo Meyer-Brandis, 2017. "Local risk-minimization with multiple assets under illiquidity with applications in energy markets," Papers 1705.06918, arXiv.org, revised Jun 2018.

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