On the Structure of General Mean-Variance Hedging Strategies

Abstract

We provide a new characterization of mean-variance hedging strategies in a general semimartingale market. The key point is the introduction of a new probability measure $P^{\star }$ which turns the dynamic asset allocation problem into a myopic one. The minimal martingale measure relative to $P^{\star }$ coincides with the variance-optimal martingale measure relative to the original probability measure $P$.

Published at http://dx.doi.org/10.1214/009117906000000872 in the Annals of Probability (http://www.imstat.org/aop/) by the Institute of Mathematical Statistics (http://www.imstat.org)

References in corpus (1)

• Variance-optimal hedging for processes with stationary independent increments

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