An extension of mean-variance hedging to the discontinuous case (Q1776030)

The author focuses on the mean-variance hedging for incomplete financial market models whose asset price fluctuation is discontinuous and can be represented as a special semimartingale. The additional assumptions related to the variance-optimal martingale measure are the following ones: (i) this measure exists as a probability measure; (ii) its density process satisfies the reverse Hölder inequality and a certain condition related to jumps. A decomposition of the contingent claim is constructed similarly to the continuous case. Unfortunately, the decomposition, in general, is not orthogonal. However, thanks to the technical condition (ii), nice properties of each term in the decomposition are obtained. Thereby, a similar to the continuous case representation of the mean-variance hedging is established.