INFINITE-HORIZON OPTIMAL HEDGING UNDER CONE CONSTRAINTS by KEVIN
نویسنده
چکیده
We address the issue of hedging in in nite horizon markets under cone constraints on the number of shares of assets. We show that the minimum cost of hedging a liability stream is equal to its largest present value with respect to admissible stochastic discount factors, thus can be determined without nding an optimal hedging strategy. We develop an algorithm by which an optimal portfolio in one date-event can be obtained without nding that in others. We apply the results to a variety of trading restrictions and show how the admissible stochastic discount factors can be characterized. JEL CLASSIFICATION: C61, G10, G20.
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