Comparing quadratic and non-quadratic local risk minimization for the hedging of contingent claims

Frédéric Abergel (1, 2)

1 FiQuant - Chaire de finance quantitative
2 MAS - Mathématiques Appliquées aux Systèmes - EA 4037

In this note, I study further a new approach recently introduced for the hedging of derivatives in incomplete markets via non quadratic local risk minimization. A structure result is provided, which essentially shows the equivalence between non-quadratic risk minimization under the historical probability and quadratic local risk minimization under an equivalent, implicitly defined probability.

Domaines: Finance quantitative [q-fin.CP]; Probabilités [math.PR]; Pricing [q-fin.PR]

Frédéric Abergel. Comparing quadratic and non-quadratic local risk minimization for the hedging of contingent claims. 2013. ⟨hal-00771528⟩