STUDY ON CONTINUOUS-TIME HEDGING PROBLEM IN INCOMPLETE MARKETS

摘要

This paper extended the continuous time dynamic hedging theorem for the incomplete markets of Bertsimas, Kogan and Lo’s to the case in which riskless interest rate is not zero. The theorem was then proved with the stochastic dynamic programming theory, by constructing a self financing dynamic strategy that best approximates an arbitrary payoff function in the mean squared sense. When the riskless interest rate is zero, our optimal hedging strategy coincides with the results of Bertsimas, Kogan and Lo,i.e. their results are special cases of ours.