, Volume 3, Issue 3, pp 251-273

Quantile hedging

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Abstract.

In a complete financial market every contingent claim can be hedged perfectly. In an incomplete market it is possible to stay on the safe side by superhedging. But such strategies may require a large amount of initial capital. Here we study the question what an investor can do who is unwilling to spend that much, and who is ready to use a hedging strategy which succeeds with high probability.

Manuscript received: January 1998; final version received: August 1998