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Date
2010-11Type
- Working Paper
ETH Bibliography
yes
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Abstract
We study mean-variance hedging under portfolio constraints in a general semi-martingale model. The constraints are formulated via predictable correspondences, meaning that the trading strategy is restricted to lie in a closed convex set which may depend on the state and time in a predictable way. To obtain the existence of a solution, we first establish the closedness in L2 of the space of all gains from trade (i.e., the terminal values of stochastic integrals with respect to the price process of the underlying assets). This is a first main contribution which enables us to tackle the problem in a systematic and unified way. In addition, using the closedness allows us to explain and generalise in a systematic way the convex duality results obtained previously by other authors via ad hoc methods in specific frameworks. Show more
Publication status
publishedExternal links
Journal / series
FINRISK Working Paper SeriesVolume
Publisher
FINRISKSubject
Mean-variance hedging; Constraints; Convex dualityOrganisational unit
03658 - Schweizer, Martin / Schweizer, Martin
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ETH Bibliography
yes
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