The Annals of Applied Probability

Hedging Contingent Claims with Constrained Portfolios

Jaksa Cvitanic and Ioannis Karatzas

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Abstract

We employ a stochastic control approach to study the question of hedging contingent claims by portfolios constrained to take values in a given closed, convex subset of $\mathscr{R}^d$. In the framework of our earlier work for utility maximization with constrained portfolios, we extend results of El Karoui and Quenez on incomplete markets and treat the case of different interest rates for borrowing and lending.

Article information

Source
Ann. Appl. Probab. Volume 3, Number 3 (1993), 652-681.

Dates
First available: 19 April 2007

Permanent link to this document
http://projecteuclid.org/euclid.aoap/1177005357

JSTOR
links.jstor.org

Digital Object Identifier
doi:10.1214/aoap/1177005357

Mathematical Reviews number (MathSciNet)
MR1233619

Zentralblatt MATH identifier
0825.93958

Subjects
Primary: 93E20: Optimal stochastic control
Secondary: 90A09 60H30: Applications of stochastic analysis (to PDE, etc.) 60G44: Martingales with continuous parameter 90A16

Keywords
Constrained portfolios stochastic control martingale representations hedging claims equivalent martingale measures option pricing Black and Scholes formula

Citation

Cvitanic, Jaksa; Karatzas, Ioannis. Hedging Contingent Claims with Constrained Portfolios. The Annals of Applied Probability 3 (1993), no. 3, 652--681. doi:10.1214/aoap/1177005357. http://projecteuclid.org/euclid.aoap/1177005357.


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