In life-cycle economics the Samuelson paradigm (Samuelson, 1969) states that the optimal investment is in constant proportions out of lifetime wealth composed of current savings and the present value of future income. It is well known that in the presence of credit constraints this paradigm no...

In this paper we report further progress towards a complete theory of state-independent expected utility maximization with semi-martingale price processes for arbitrary utility function. Without any technical assumptions we establish a surprising Fenchel duality result on conjugate Orlicz...

We suggest an improved FFT pricing algorithm for discretely sampled Asian options with general independently distributed returns in the underlying. Our work complements the studies of Carverhill and Clewlow (1992), Benhamou (2000), and Fusai and Meucci (2008), and, if we restrict our attention...

Almost 20 years ago Foellmer and Schweizer (1989) suggested a simple and influential scheme for the computation of hedging strategies in an incomplete market. Their approach of local risk minimization results in a sequence of one-period least squares regressions running recursively backwards in...

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...

Suppose an investment bank consists of two desks trading in equity and equity options, and it operates in a market where equity returns are leptokurtic. It is well known (Schweizer 1994) that the optimal mean-variance trading strategy for the bank as a whole is path-dependent. This paper...

The minimal martingale measure (MMM) was introduced and studied by Fouml;llmer and Schweizer (1990) in the context of mean square hedging in incomplete markets. Recently, the theory of no-good-deal pricing gave further evidence that the MMM plays a prominent role in security valuation in an...