On the existence of an efficient hedge for an American contingent claim within a discrete time market
We show the existence of efficient hedge strategies for an investor facing the problem of a lack of initial capital for implementing a (super-) hedging strategy for an American contingent claim in a general incomplete market. In order to optimize we consider the maximization of the expected success ratio of the worst possible case as well as the minimization of the shortfall risk. These problems lead to stochastic games which do not need to have a value. We provide an example for this in a CRR model for an American put option. Alternatively we might fix a minimal expected success ratio or a boundary for the shortfall risk and look for the minimal amount of initial capital for which there is a self-financing strategy fulfilling one or the other restriction. For all these problems we show the optimal strategy consists in hedging a modified American claim [image omitted] for some 'randomized test process' ϕ.
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): 7 (2007)
Issue (Month): 5 ()
|Contact details of provider:|| Web page: http://www.tandfonline.com/RQUF20|
|Order Information:||Web: http://www.tandfonline.com/pricing/journal/RQUF20|
When requesting a correction, please mention this item's handle: RePEc:taf:quantf:v:7:y:2007:i:5:p:547-551. 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: (Michael McNulty)
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.