Sampled control for mean-variance hedging in a jump diffusion financial market

Abstract

In this technical note we consider the mean-variance hedging problem of a jump diffusion continuous state space financial model with the re-balancing strategies for the hedging portfolio taken at discrete times, a situation that more closely reflects real market conditions. A direct expression based on some change of measures, not depending on any recursions, is derived for the optimal hedging strategy as well as for the 'fair hedging price' considering any given payoff. For the case of a European call option these expressions can be evaluated in a closed form.