Optional decompositions under constraints
Motivated by a hedging problem in mathematical finance, El Karoui and Quenez  and Kramkov  have developed optional versions of the Doob-Meyer decomposition which hold simultaneously for all equivalent martingale measures. We investigate the general structure of such optional decompositions, both in additive and in multiplicative form, and under constraints corresponding to di_erent classes of equivalent measures. As an application, we extend results of Karatzas and Cvitanic  on hedging problems with constrained portfolios.
|Date of creation:||1997|
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- H. Föllmer & Y.M. Kabanov, 1997.
"Optional decomposition and Lagrange multipliers,"
Finance and Stochastics,
Springer, vol. 2(1), pages 69-81.
- Föllmer, Hans & Kabanov, Jurij M., 1997. "Optional decomposition and lagrange multipliers," SFB 373 Discussion Papers 1997,54, Humboldt University of Berlin, Interdisciplinary Research Project 373: Quantification and Simulation of Economic Processes.
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