On the Structure of General Mean-Variance Hedging Strategies

By Alevs vCern'y, Jan Kallsen. 2007

141 citations recorded by the source corpus.

We provide a new characterization of mean-variance hedging strategies in a general semimartingale market. The key point is the introduction of a new probability measure $P^{\star}$ which turns the dynamic asset allocation problem into a myopic one. The minimal martingale measure relative to $P^{\star}$ coincides with the variance-optimal martingale measure relative to the original probability measure $P$.

Subfields: Accounting, Finance, Management Science and Operations Research

View Paper: https://www.semanticscholar.org/paper/6e82872a8039983bfbdf1a4be25a72bfe09ede98

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In Management Science and Operations Research

Citations in the corpus

UTILITY MAXIMIZATION IN AFFINE STOCHASTIC VOLATILITY MODELS (2010, unknown): “It = t.”
Stochastic mortality under measure changes (2010, unknown): “The minimal cost to implement such strategy identifies a no-arbitrage price consistent with the quadratic hedging criterion (see Cerny & Kallsen (2007), and references therein).”
Portfolios and risk premia for the long run. (2012, unknown): “Černý and Kallsen (2007) study mean–variance hedging for semimartingales and obtain optimal strategies in terms of the predictable characteristics of asset prices under an opportunity neutral probability P ∗, which is similar in spirit to P̂ y , in that it reduces the mean–variance objective to a…”
Pricing and Hedging in Exponential Lévy Models: Review of Recent Results (2011, background): “This approach, known as mean-variance hedging or variance optimal hedging, is described in many papers including [9, 40, 54, 8, 29, 14].”
MEAN–VARIANCE HEDGING AND OPTIMAL INVESTMENT IN HESTON'S MODEL WITH CORRELATION (2008, methodology): “Our contribution is threefold: using a new concept of opportunity-neutral measure (cf. Černý and Kallsen 2007, hereafter CK07) we present a simplified strategy for computing a candidate solution in the correlated case.”