Local Risk-Minimization under the Benchmark Approach

Abstract

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.

Cited by in corpus (3)

• Polynomial Diffusion Models for Life Insurance Liabilities
• A Benchmark Approach to Risk-Minimization under Partial Information
• Extended Reduced-Form Framework for Non-Life Insurance