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Minimal variance hedging for insider trading. (English) Zbl 1134.91397

Summary: We first study the problem of minimal hedging for an insider trader in incomplete markets. We use the forward integral in order to model the insider portfolio and consider a general larger filtration. We characterize the optimal strategy in terms of a martingale condition. In the second part we focus on a problem of mean-variance hedging where the insider tries to minimize the variance of his wealth at time \(T\) given that this wealth has a fixed expected value \(A\). We solve this problem for an initial enlargement of filtration by providing an explicit solution.

MSC:

91B28 Finance etc. (MSC2000)
60H05 Stochastic integrals
60H30 Applications of stochastic analysis (to PDEs, etc.)
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