Maximizing the probability of a perfect hedge
Spivak, Gennady ; Cvitanić, Jakša
Ann. Appl. Probab., Tome 9 (1999) no. 1, p. 1303-1328 / Harvested from Project Euclid
In the framework of continuous-time, Itô processes models for financial markets, we study the problem of maximizing the probability of an agent's wealth at time T being no less than the value C of a contingent claim with expiration time T. The solution to the problem has been known in the context of complete markets and recently also for incomplete markets; we rederive the complete markets solution using a powerful and simple duality method, developed in utility maximization literature. We then show how to modify this approach to solve the problem in a market with partial information, the one in which we have only a prior distribution on the vector of return rates of the risky assets. Finally, the same problem is solved in markets in which the wealth process of the agent has a nonlinear drift. These include the case of different borrowing and lending rates, as well as "large investor" models. We also provide a number of explicitly solved examples.
Publié le : 1999-11-14
Classification:  Hedging,  partial information,  large investor,  margin requirements,  90A09,  90A46,  93E20,  60H30
@article{1029962873,
     author = {Spivak, Gennady and Cvitani\'c, Jak\v sa},
     title = {Maximizing the probability of a perfect hedge},
     journal = {Ann. Appl. Probab.},
     volume = {9},
     number = {1},
     year = {1999},
     pages = { 1303-1328},
     language = {en},
     url = {http://dml.mathdoc.fr/item/1029962873}
}
Spivak, Gennady; Cvitanić, Jakša. Maximizing the probability of a perfect hedge. Ann. Appl. Probab., Tome 9 (1999) no. 1, pp.  1303-1328. http://gdmltest.u-ga.fr/item/1029962873/