On mean-variance hedging under partial observations and terminal wealth constraints
Mathematical Finance
2017-04-24 v1 Probability
Abstract
In the paper, a mean-square minimization problem under terminal wealth constraint with partial observations is studied. The problem is naturally connected to the mean-variance hedging problem under incomplete information. A new approach to solving this problem is proposed. The paper provides a solution when the underlying pricing process is a square-integrable semimartingale. The proposed method for the study is based on the martingale representation. In special cases, the Clark-Ocone representation can be used to obtain explicit solutions. The results and the method are illustrated and supported by example with two correlated geometric Brownian motions.
Keywords
Cite
@article{arxiv.1704.06550,
title = {On mean-variance hedging under partial observations and terminal wealth constraints},
author = {Vitalii Makogin and Alexander Melnikov and Yuliya Mishura},
journal= {arXiv preprint arXiv:1704.06550},
year = {2017}
}