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Some Remarks On Mean-Variance Hedging For Discontinuous Asset Price Processes

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  • TAKUJI ARAI

    (Faculty of Economics, Keio University, 2-15-45, Mita, Minato-Ku, Tokyo, 108-8345, Japan)

Abstract

Mean-variance hedging for the discontinuous semimartingale case is obtained under some assumptions related to the variance-optimal martingale measure. In the present paper, two remarks on it are discussed. One is an extension of Hou–Karatzas' duality approach from the continuous case to discontinuous. Another is to prove that there is the consistency with the case where the mean-variance trade-off process is continuous and deterministic. In particular, one-dimensional jump diffusion models are discussed as simple examples.

Suggested Citation

  • Takuji Arai, 2005. "Some Remarks On Mean-Variance Hedging For Discontinuous Asset Price Processes," International Journal of Theoretical and Applied Finance (IJTAF), World Scientific Publishing Co. Pte. Ltd., vol. 8(04), pages 425-443.
    • Handle: RePEc:wsi:ijtafx:v:08:y:2005:i:04:n:s0219024905003062
    DOI: 10.1142/S0219024905003062
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    References listed on IDEAS

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    1. Arai, Takuji, 2005. "Some properties of the variance-optimal martingale measure for discontinuous semimartingales," Statistics & Probability Letters, Elsevier, vol. 74(2), pages 163-170, September.
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    Cited by:

    1. George Bouzianis & Lane P. Hughston, 2020. "Optimal Hedging in Incomplete Markets," Papers 2006.12989, arXiv.org, revised Sep 2020.

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