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On quadratic hedging in continuous time

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Abstract.

We review the main results in the theory of quadratic hedging in a general incomplete model of continuous trading with semimartingale price process. The objective is to hedge contingent claims by using portfolio strategies. We describe two types of criteria: the so-called (local) risk-minimization and the mean-variance approaches. From a mathematical viewpoint, these optimization problems lead to new variants of decomposition theorems in stochastic analysis.

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Authors and Affiliations

  1. Laboratoire de Probabilités et Modèles Aléatoires, UMR 7599, Université Paris 7, 2 Place Jussieu, 75251 Paris Cedex 05, France (e-mail: pham@gauss.math.jussieu.fr), , , , , , FR

    Huyên Pham

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  1. Huyên Pham
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Manuscript received: March 1999/final version received: September 1999

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Pham, H. On quadratic hedging in continuous time. Mathematical Methods of OR 51, 315–339 (2000). https://doi.org/10.1007/s001860050091

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  • DOI: https://doi.org/10.1007/s001860050091

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