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Hedging Contingent Claims with Constrained Portfolios

Cvitanić, Jakša and Karatzas, Ioannis (1993) Hedging Contingent Claims with Constrained Portfolios. Annals of Applied Probability, 3 (3). pp. 652-681. ISSN 1050-5164. http://resolver.caltech.edu/CaltechAUTHORS:20120309-140207905

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Abstract

We employ a stochastic control approach to study the question of hedging contingent claims by portfolios constrained to take values in a given closed, convex subset of R^d. In the framework of our earlier work for utility maximization with constrained portfolios, we extend results of El Karoui and Quenez on incomplete markets and treat the case of different interest rates for borrowing and lending.


Item Type:Article
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http://projecteuclid.org/DPubS?service=UI&version=1.0&verb=Display&handle=euclid.aoap/1177005357PublisherUNSPECIFIED
Additional Information:© 1993 Institute of Mathematical Statistics. Received May 1992; revised November 1992. Research supported in part by NSF Grant DMS-90-22188. We are indebted to Professor Mark Brown for bringing to our attention the well-known fact (7.4) for the European call option. Thanks are also due the referees and an Associate Editor for their careful reading of the manuscript and for suggesting improvements that greatly enhanced its readability. We are grateful to M. C. Quenez for sending us the preprint El Karoui, Peng and Quenez (1993) which inspired Proposition 6.13 and elicited Remark 9.6.
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Funding AgencyGrant Number
NSFDMS-90-22188
Subject Keywords:Constrained portfolios; stochastic control; martingale representations; hedging claims; equivalent martingale measures; option pricing; Black and Scholes formula
Classification Code:MSC: Primary Subjects: 93E20; Secondary Subjects: 90A09, 60H30, 60G44, 90A16
Record Number:CaltechAUTHORS:20120309-140207905
Persistent URL:http://resolver.caltech.edu/CaltechAUTHORS:20120309-140207905
Official Citation:Hedging Contingent Claims with Constrained Portfolios Jaksa Cvitanic and Ioannis Karatzas; 652-681
Usage Policy:No commercial reproduction, distribution, display or performance rights in this work are provided.
ID Code:29672
Collection:CaltechAUTHORS
Deposited By: Ruth Sustaita
Deposited On:12 Mar 2012 15:55
Last Modified:26 Dec 2012 14:56

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