scientific article; zbMATH DE number 17495
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Publication:3974816
[For the entire collection see Zbl 0728.00017.] We consider an incomplete market and want to find optimal hedging strategies for contingent claims when the underlying price process \(X\) is a continuous semimartingale. A first solution is provided by a martingale projection argument with respect to the minimal equivalent martingale measure \(\hat P\) for \(X\). We introduce this notion, discuss existence and uniqueness of \(\hat P\) and give a characterization in terms of a relative entropy. If \(X\) is complete under a larger filtration, we can also obtain the optimal strategies under certain assumptions by a projection onto the given smaller filtration. As an example of the second type, we study the case where \(X\) is a diffusion with a random variance.
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