Discussion Papers, Interdisciplinary Research Project 373: Quantification and Simulation of Economic Processes 1998,13
In a complete financial market every contingent claim can be hedged perfectly. In an incomplete market it is possible to stay on the safe side by superhedging. But such strategies may require a large amount of initial capital. Here we study the question what an investor can do who is unwilling to spend that much, and who is ready to use a hedging strategy which succeeds with high probability.
Hedging superhedging Neyman Pearson lemma stochastic volatility value at risk