The present note addresses an open question concerning a sufficient characterization of the variance-optimal martingale measure. Denote by S the discounted price process of an asset and suppose that Q* is an equivalent martingale measure whose density is a multiple of 1 minus; \varphi S_T for...

This paper solves the mean-variance hedging problem in Heston's model with a stochastic opportunity set moving systematically with the volatility of stock returns. We allow for correlation between stock returns and their volatility (so-called leverage effect).lt;brgt;lt;brgt;Our contribution is...

We provide a new characterisation 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...

We show that the option hedging risk of an optimal, continuously rebalanced hedging strategy in an exponential Lévy model is well approximated by the risk taken from the discrete-time Black-Scholes model whose time step equals half of the excess kurtosis rate of the real-world stock returns....

The paper investigates quadratic hedging in a general semimartingale market that does not necessarily contain a risk-free asset. An equivalence result for hedging with and without numeraire change is established. This permits direct computation of the optimal strategy without choosing a...