On the structure of general mean-variance hedging strategies

Details On the structure of general mean-variance hedging strategies On the structure of general mean-variance hedging strategies

2007-08-13

arxiv.org/abs/0708.1715v1

Annals of Probability 2007, Vol. 35, No. 4, 1479-1531

Economy

Quantitative Finance

Portfolio Management

Published at http://dx.doi.org/10.1214/009117906000000872 in the Annals of Probability (http://www.imstat.org/aop/) by the Ins

Scientific paper

10.1214/009117906000000872

We provide a new characterization of mean-variance hedging strategies in a general semimartingale market. The key point is the introduction of a new probability measure $P^{\star}$ which turns the dynamic asset allocation problem into a myopic one. The minimal martingale measure relative to $P^{\star}$ coincides with the variance-optimal martingale measure relative to the original probability measure $P$.

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