Local risk-minimization under the benchmark approach

Publication Type:
Journal Article
Citation:
Mathematics and Financial Economics, 2014, 8 (2), pp. 109 - 134
Issue Date:
2014-03-01
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© 2014, Springer-Verlag Berlin Heidelberg. We study the pricing and hedging of derivatives in incomplete financial markets by considering the local risk-minimization method in the context of the benchmark approach, which will be called benchmarked local risk-minimization. We show that the proposed benchmarked local risk-minimization allows to handle under extremely weak assumptions a much richer modeling world than the classical methodology.
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