Optimal Dynamic Hedging in Incomplete Futures Markets
This paper describes optimal hedging demands for futures from a Bernouilli or a CARA investor who cannot freely trade his portfolio of primitive assets. Markets are incomplete, and in the CARA case, the non-negativity constraint on wealth is binding. Ficticiously completing the market, we derive closed-form solutions in the logarithmic case but not in the CARA case for which there is an implicit put.
LIOUI, A., NGUYEN, P.D. et PONCET, P. (1996). Optimal Dynamic Hedging in Incomplete Futures Markets. Geneva Papers on Risk and Insurance – Issues and Practice, pp. 103-122.