In this paper, we consider the problem of optimal partial hedging for a contingent claim subject to a preset hedging budget constraint. Under some technical assumptions on the hedged loss function and the market pricing functional, the optimal partial hedging strategy, which minimizes the...

Basis risk occurs naturally in a number of financial and insurance risk management problems. A notable example is in the context of hedging a derivative where the underlying security is either non-tradable or not sufficiently liquid. Other examples include hedging longevity risk using...