Local risk-minimization under the benchmark approach

Biagini, Francesca ; Cretarola, Alessandra and Platen, Eckhard (2014): Local risk-minimization under the benchmark approach. In: Mathematics and Financial Economics, Vol. 8, No. 2: pp. 109-134

Abstract

We study the pricing and hedging of derivatives in incomplete financial markets by considering the local risk-minimization method in the context of the benchmark approach, which will be called benchmarked local risk-minimization. We show that the proposed benchmarked local risk-minimization allows to handle under extremely weak assumptions a much richer modeling world than the classical methodology.

• Item Type: Journal article
• Faculties: Mathematics, Computer Science and Statistics > Mathematics > Workgroup Financial Mathematics
• Subjects: 500 Science > 510 Mathematics
• ISSN: 1862-9679
• Language: English