Hedging Diffusion Processes by Local Risk Minimization with Applications to Index Tracking

Colwell, D; El-Hassan, N; Kwon, O

Hedging Diffusion Processes by Local Risk Minimization with Applications to Index Tracking

Colwell, D El-Hassan, N Kwon, O

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Publisher:: Elsevier B.V.
Publication Type:: Journal Article
Citation:: Journal of Economic Dynamics and Control, 2007, 31 (7), pp. 2135 - 2151
Issue Date:: 2007-01

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Field	Value	Language
dc.contributor.author	Colwell, D	en_US
dc.contributor.author	El-Hassan, N	en_US
dc.contributor.author	Kwon, O	en_US
dc.date.issued	2007-01	en_US
dc.identifier.citation	Journal of Economic Dynamics and Control, 2007, 31 (7), pp. 2135 - 2151	en_US
dc.identifier.issn	0165-1889	en_US
dc.identifier.uri	http://hdl.handle.net/10453/5100
dc.description.abstract	This paper extends the local risk-minimization criterion for hedging contingent claims, as introduced in F?er and Sondermann [Hedging of non-redundant contingent claims. In: Hildenbrand, W., Mas-Colell, A. (Eds.), Contributions to Mathematical Economics. Elsevier Science, North-Holland, Amsterdam, pp. 205?223], F?er and Schweizer [Hedging of contigent claims under incomplete information. In: Davis, M., Elliot, R. (Eds.), Applied Stochastic Analysis, Stochastic Monographs, vol. 5, Gordon and Breach, London/New York, pp. 389?414] and Schweizer [Option hedging for semimartingales. Stochastic Processes and their Applications 37, 339?363], to the hedging of entire stochastic processes, and determines the necessary and sufficient conditions under which this is possible. The results are then applied to the problem of stock index tracking to obtain simple criteria for selecting the optimal set of assets with which to form tracker portfolios, and to derive a value-at-risk type measure for the set of assets used.	en_US
dc.publisher	Elsevier B.V.	en_US
dc.relation.ispartof	Journal of Economic Dynamics and Control	en_US
dc.relation.isbasedon	10.1016/j.jedc.2006.06.005	en_US
dc.subject.classification	Economics	en_US
dc.title	Hedging Diffusion Processes by Local Risk Minimization with Applications to Index Tracking	en_US
dc.type	Journal Article
utslib.citation.volume	7	en_US
utslib.citation.volume	31	en_US
utslib.for	1402 Applied Economics	en_US
utslib.for	1401 Economic Theory	en_US
utslib.for	1502 Banking, Finance and Investment	en_US
pubs.embargo.period	Not known	en_US
pubs.organisational-group	/University of Technology Sydney
pubs.organisational-group	/University of Technology Sydney/Faculty of Business
pubs.organisational-group	/University of Technology Sydney/Faculty of Business/Finance Discipline
utslib.copyright.status	closed_access
pubs.consider-herdc	true	en_US
pubs.issue	7	en_US
pubs.volume	31	en_US

Abstract:

This paper extends the local risk-minimization criterion for hedging contingent claims, as introduced in F?er and Sondermann [Hedging of non-redundant contingent claims. In: Hildenbrand, W., Mas-Colell, A. (Eds.), Contributions to Mathematical Economics. Elsevier Science, North-Holland, Amsterdam, pp. 205?223], F?er and Schweizer [Hedging of contigent claims under incomplete information. In: Davis, M., Elliot, R. (Eds.), Applied Stochastic Analysis, Stochastic Monographs, vol. 5, Gordon and Breach, London/New York, pp. 389?414] and Schweizer [Option hedging for semimartingales. Stochastic Processes and their Applications 37, 339?363], to the hedging of entire stochastic processes, and determines the necessary and sufficient conditions under which this is possible. The results are then applied to the problem of stock index tracking to obtain simple criteria for selecting the optimal set of assets with which to form tracker portfolios, and to derive a value-at-risk type measure for the set of assets used.

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http://hdl.handle.net/10453/5100