Template-Type:ReDIF-Paper 1.0  
Title:Optional decomposition of supermartingales and hedging contingent claims in incomplete security markets
Author-Name:Kramkov, D.O. 
Classification-JEL:G13 
Keywords:Doob-Meyer decomposition, optional decomposition, martingale measure, stochastic integral, semimartingale
	topology, incomplete market, hedging, options
Abstract:Let M(X) be a family of all equivalent local martingale measures for some locally bounded d-dimensional process
	X, and V be a positive process. Main result of the paper (Theorem 2.1) states that the process V is a supermartingale whatever
	Q in M(X), if and only if this process admits the following decomposition: V_t = V_0 + \int_0^t H_s dX_s - C_t, t>= 0, where
	H is an integrand for X, and C is an adapted increasing process. We call such a representation the optional because, in contrast
	to Doob-Meyer decomposition, it generally exists only with an adapted (optional) process C. We apply this decomposition to
	the problem of hedging European and American style contingent claims in a setting of incomplete security markets. 
Length: pages
Creation-Date: 1994-10
Revision-Date: 
Handle: RePEc:bon:bonsfb:294
File-URL: http://www.wiwi.uni-bonn.de/bgsepapers/bonsfb/bonsfb294.pdf
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