On the Structure of General Mean-Variance Hedging Strategies
The Annals of Probability, 2007, 35(4), 1479-1531
51 Pages Posted: 3 May 2005 Last revised: 22 Jun 2020
Date Written: April 1, 2005
Abstract
We provide a new characterisation of mean-variance hedging strategies in a general semimartingale market. The key point is the introduction of a new probability measure P* which turns the dynamic asset allocation problem into a myopic one. The minimal martingale measure relative to P* coincides with the variance-optimal martingale measure relative to the original probability measure P.
Keywords: mean-variance hedging, opportunity process, opportunity-neutral measure, incomplete market, Sharpe ratio, semimartingales
JEL Classification: G11, G12, G13
Suggested Citation: Suggested Citation
Do you want regular updates from SSRN on Twitter?
Recommended Papers
-
Stochastic Volatility Models, Correlation, and the Q-Optimal Measure
-
By Vicky Henderson, David G. Hobson, ...
-
Analytical Comparisons of Option Prices in Stochastic Volatility Models
-
Dynamic Programming and Mean-Variance Hedging in Discrete Time
By Aleš Černý
-
Optimal Continuous-Time Hedging with Leptokurtic Returns
By Aleš Černý
-
Optimal Continuous-Time Hedging with Leptokurtic Returns
By Aleš Černý
-
Explicit Representation of the Minimal Variance Portfolio in Markets Driven by Levy Processes
By Fred Espen Benth, Giulia Di Nunno, ...
-
Mean-Variance Hedging and Optimal Investment in Heston's Model with Correlation
By Aleš Černý and Jan Kallsen
-
Mean Variance Hedging and Optimal Investment in Heston's Model with Correlation
By Alea Cerný and Jan Kallsen
-
By Aleš Černý