Hedging with forwards and puts in complete and incomplete markets

Hedging Strategies : Complete and Incomplete Systems of Markets

Coherent Hedging in Incomplete Markets

In incomplete financial markets not every given contingent claim can be replicated by a self-financing strategy. The risk of the resulting shortfall can be measured by coherent risk measures, introduced by Artzner et al. [1]. The dynamic optimization problem of finding a self-financing strategy that minimizes the coherent risk of the shortfall can be split into a static optimization problem and...

Hedging in incomplete markets and optimal control

We consider a problem of Duffie and Richardson in an economy in which there are two observable processes X and Y both driven by Brownian motions. One of processes is the price process of the asset which can be used for hedging the contingent claim. The objective is to find a trading strategy which minimizes the deviation (in p-norm or other loss function) of the portfolio value from the stochas...

Pricing and Hedging in Incomplete Markets

We present a new approach for positioning, pricing, and hedging in incomplete markets that bridges standard arbitrage pricing and expected utility maximization. Our approach for determining whether an investor should undertake a particular position involves specifying a set of probability measures and associated °oors which expected payo®s must exceed in order for the investor to consider the h...

Investment , Consumption and Hedging under Incomplete Markets ∗

Entrepreneurs often face undiversifiable idiosyncratic risks from their business investments. Motivated by this observation, we extend the standard real options approach to investment to an incomplete markets environment and analyze the joint decisions of business investments, consumption-saving and portfolio selection. We show that precautionary saving motive affects the investment timing deci...