Local Risk-Minimization under the Benchmark Approach
We study the pricing and hedging of derivatives in incomplete financial markets by considering the local risk-minimization method in the context of the benchmark approach, which will be called benchmarked local risk-minimization. We show that the proposed benchmarked local risk-minimization allows to handle under extremely weak assumptions a much richer modeling world than the classical methodology.
|Date of creation:||01 Dec 2012|
|Date of revision:|
|Publication status:||Published as: Biagini, F., Cretarola, A. and Platen, E., 2014, "Local Risk-Minimization under the Benchmark Approach", Mathematics and Financial Economics, 8(2), 109-134.|
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- Merton, Robert C, 1973. "An Intertemporal Capital Asset Pricing Model," Econometrica, Econometric Society, vol. 41(5), pages 867-87, September.
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