A benchmark approach to risk-minimization under partial information

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Abstract

The goal of this paper is to investigate (locally) risk-minimizing hedging strategies under the benchmark approach in a financial semimartingale market model where there are restrictions on the available information. More precisely, we characterize the optimal strategy as the integrand appearing in the Galtchouk-Kunita-Watanabe decomposition of the benchmarked contingent claim under partial information and provide its description in terms of the integrand in the classical Galtchouk-Kunita-Watanabe decomposition under full information via dual predictable projections. Finally we show how these results can be applied to unit-linked life insurance contracts. © 2014 Elsevier B.V.

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Ceci, C., Colaneri, K., & Cretarola, A. (2014). A benchmark approach to risk-minimization under partial information. Insurance: Mathematics and Economics, 55(1), 129–146. https://doi.org/10.1016/j.insmatheco.2014.01.003

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