In this paper we investigate the local risk-minimization approach for a combined financial-insurance model where there … contracts via the local risk-minimization approach under partial information. The Föllmer–Schweizer decomposition of the …

markets, basis risk, local risk minimization, mean-variance hedging. This version: June 2008. ySchool of Finance and Economics … throughout. In particular, we discuss the two quadratic approaches of local risk minimization and mean-variance hedging. Key to …, the PDE that emerges, for both local risk minimization and mean-variance optimization, is the familiar Black-Scholes PDE …

. More specifically, we implement local risk minimization and a minimum variance hedge approximation based on an extended … probability measure in this setting, we construct local risk minimization hedging strategies with respect to a pricing kernel …