Mean-Variance Hedging on uncertain time horizon in a market with a jump

2012/06/16 by Idris Kharroubi, Kharroubi, Idris, Thomas Lim +3 · 1 citation
Business, Management and Accounting · Decision Sciences · Economics, Econometrics and Finance · Mathematics · #FOS: Mathematics #Optimization and Control (math.OC) #Risk Management in Financial Firms #Risk and Portfolio Optimization #Stochastic processes and financial applications #math.OC

paper · pdf · doi:10.48550/arxiv.1206.3693

openalex publication_date 2012/06/16 · arxiv created 2013/07/24 · arxiv updated 2013/07/25 · openalex created_date 2025/10/10 · openalex updated_date 2026/07/28

Abstract

In this work, we study the problem of mean-variance hedging with a random horizon T ^ tau, where T is a deterministic constant and is a jump time of the underlying asset price process. We rst formulate this problem as a stochastic control problem and relate it to a system of BSDEs with jumps. We then provide a veri cation theorem which gives the optimal strategy for the mean-variance hedging using the solution of the previous system of BSDEs. Finally, we prove that this system of BSDEs admits a solution via a decomposition approach coming from ltration enlargement theory.

Citations

• Utility maximization in incomplete markets

Cited by

• 2BSDE with uncertain horizon and application to stochastic control in erratic environments

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