Local risk-minimization under the benchmark approach (Q2452150): Difference between revisions

The paper studies 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 is called benchmarked local risk-minimization. It is shown that the proposed approach allows one to handle a much richer modeling world than the classical methodology, since it operates under relatively weak assumptions. The results are illustrated by providing useful examples.