The paper provides a numerical comparison of local risk minimisation and mean-variance hedging for some key variations of stochastic volatility models. A hedging and pricing framework is established for both approaches. Important quantitative differences become apparent that have implications...

We consider a very general diffusion model for asset prices which allows the description of stochastic and past-dependent volatilities. Since this model typically yields an incomplete market, we show that for the purpose of pricing options, a small investor should use the minimal equivalent...