Christian Hipp, Universität Karlsruhe: Hedging general
   claims: projection versus stochastic control

Abstract:

We consider the Foellmer-Schweizer-Sondermann-problem of
hedging general claims in incomplete markets. The objective
function is E(L-G)^2, the residual risk, where L is the
contingent claim and G the accumulated gain from trading
an index/equity in the time interval 0 to T. Until now, this
problem has been analysed with projection methods. The
results obtained with this method will be presented. The
above hedging problem can equally well be stated in the
framework of stochastic control, which gives new insight
to the problem and new results for the calculation of optimal
hedging strategies.