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An extension of mean-variance hedging to the discontinuous case

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Abstract.

Our goal in this paper is to give a representation of the mean-variance hedging strategy for models whose asset price process is discontinuous as an extension of Gouriéroux, Laurent and Pham (1998) and Rheinländer and Schweizer (1997). However, we have to impose some additional assumptions related to the variance-optimal martingale measure.

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Correspondence to Takuji Arai.

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Received: April 2004,

Mathematics Subject Classification (2000):

91B28, 60G48, 60H05

JEL Classification:

G10

I would like to express my gratitude to Martin Schweizer and referees for their much valuable advice. I also would like to express my gratitude to Tsukasa Fujiwara, Hideo Nagai and Jun Sekine for many helpful comments.

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Arai, T. An extension of mean-variance hedging to the discontinuous case. Finance and Stochastics 9, 129–139 (2005). https://doi.org/10.1007/s00780-004-0136-5

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  • DOI: https://doi.org/10.1007/s00780-004-0136-5

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