This paper explores the structure of optimal investment strategies using stochastic programming and duality theory in investment portfolios containing options for a hedge fund manager who attempts to beat a benchmark. Explicit optimal conditions for option investments are obtained for several...

In this paper we study the hedging of derivatives in illiquid markets. More specifically we consider a model where the implementation of a hedging strategy affects the price of the underlying security. Following earlier work we characterize perfect hedging strategies by a nonlinear version of...