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Exponential hedging and entropic penalties (2002)
| Content Provider | CiteSeerX |
|---|---|
| Author | Delbaen, Freddy Grandits, Peter Rheinläander, Thorsten Samperi, Dominick Schweizer, Martin Stricker, Christophe |
| Abstract | ¤ corresponding author Abstract: We solve the problem of hedging a contingent claim B by maximizing the ex-pected exponential utility of terminal net wealth for a locally bounded semi-martingale X. We prove a duality relation between this problem and a dual problem for local martingale measures Q for X where we either minimize rel-ative entropy minus a correction term involving B or maximize the Q-price of B subject to an entropic penalty term. Our result is robust in the sense that it holds for several choices of the space of hedging strategies. Applications in-clude a new characterization of the minimal martingale measure and risk-averse asymptotics. |
| File Format | |
| Journal | Mathematical Finance |
| Language | English |
| Publisher Date | 2002-01-01 |
| Access Restriction | Open |
| Subject Keyword | Entropic Penalty Exponential Hedging Author Abstract Contingent Claim New Characterization Duality Relation Dual Problem Correction Term Rel-ative Entropy Terminal Net Wealth Several Choice Ex-pected Exponential Utility Entropic Penalty Term Local Martingale Measure Minimal Martingale Measure Risk-averse Asymptotics |
| Content Type | Text |
| Resource Type | Article |
