Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/22822
Authors: 
Thierbach, Frank
Year of Publication: 
2002
Series/Report no.: 
Bonn econ discussion papers 2002,11
Abstract: 
In this paper we analyse the mean-variance hedging approach in an incomplete market under the assumption of additional market information, which is represented by a given, finite set of observed prices of non-attainable contingent claims. Due to no-arbitrage arguments, our set of investment opportunities increases and the set of possible equivalent martingale measures shrinks. Therefore, we obtain a modified mean-variance hedging problem, which takes into account the observed additional market information. Solving this by means of the techniques developed by Gourieroux, Laurent and Pham (1998), we obtain an explicit description of the optimal hedging strategy and an admissible, constrained variance-optimal signed martingale measure, that generates both the approximation price and the observed option prices.
Subjects: 
option pricing
mean variance hedging
incomplete markets
varianceoptimal martingale measure
JEL: 
G12
G11
Document Type: 
Working Paper

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