On the structure of general mean-variance hedging strategies

Abstract

We provide a new characterization of mean-variance hedging strategies in a general semimartingale market. The key point is the introduction of a new probability measure P^⋆ which turns the dynamic asset allocation problem into a myopic one. The minimal martingale measure relative to P^⋆ coincides with the variance-optimal martingale measure relative to the original probability measure P.