Locally risk-minimizing strategies in discrete time incomplete financial markets (Q5955928)

This paper studies locally risk-minimizing strategies in finite discrete time and proves that 1) any strategy that is risk-minimizing is also locally risk-minimizing, and 2) a mean-self-financing strategy is locally risk-minimizing if and only if its cost process is orthogonal to the martingale part of the discounted underlying asset price process. These results are known in continuous time [see \textit{M. Schweizer}, Stoch. Process. Appl. 37, 339-363 (1991; Zbl 0735.90028)] and have also been proved in discrete time in [\textit{M. Schweizer}, Hedging of Options in a General Semimartingale Model, Diss. ETH Zürich 8615 (1988)].