Multidimensional variance-optimal hedging in discrete-time model -- a general approach (Q2707147)

This paper deals with the risk minimization approach to options pricing in the theory of investment. A contingent claim and an initial endowment are given, and a quadratic loss functional is to be minimized. A multidimensional nondegeneracy condition is formulated, and it is proved that if this holds, then a minimum exists. More complicated sufficient conditions are found in the case of transaction costs, and an approach of Schweizer is shown to be equivalent to an approach of Monat and Stricker.