Schweizer, Martin Variance-optimal hedging in discrete time. (English) Zbl 0835.90008 Math. Oper. Res. 20, No. 1, 1-32 (1995). Summary: We solve the problem of approximating in \({\mathcal L}^2\) a given random variable \(H\) by stochastic integrals \(G_T(\vartheta)\) of a given diskrete-time process \(X\). We interpret \(H\) as a contingent claim to be paid out at time \(T\), \(X\) as the price evolution of some risky asset in a financial market, and \(G(\vartheta)\) as the cumulative gains from trade using the hedging strategy \(\vartheta\). As an application, we determine the variance-optimal strategy which minimizes the variance of the net loss \(H-G_T(\vartheta)\) over all strategies \(\vartheta\). Cited in 3 ReviewsCited in 77 Documents MSC: 91B28 Finance etc. (MSC2000) 60K30 Applications of queueing theory (congestion, allocation, storage, traffic, etc.) Keywords:random variable; stochastic integrals; diskrete-time process; hedging strategy PDFBibTeX XMLCite \textit{M. Schweizer}, Math. Oper. Res. 20, No. 1, 1--32 (1995; Zbl 0835.90008) Full Text: DOI