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Variance optimal hedging for continuous time additive processes and applications. (English) Zbl 1306.60047

Summary: For a large class of vanilla contingent claims, we establish an explicit Föllmer-Schweizer decomposition when the underlying process is an exponential of an additive process. This allows to provide an efficient algorithm for solving the mean variance hedging problem. Applications to models derived from the electricity market are performed.

MSC:

60G51 Processes with independent increments; Lévy processes
60J25 Continuous-time Markov processes on general state spaces
60J75 Jump processes (MSC2010)
60H05 Stochastic integrals
91G10 Portfolio theory
91G80 Financial applications of other theories
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References:

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