This paper analyzes optimal hedging of a tradable risk (e.g. price risk or exchange rate risk) with forward contracts in the presence of untradable inflation risk. Utility is defined over real wealth. Optimal forward positions are derived relative to a given initial exposure in the tradable...

In an arbitrage free incomplete market we consider the problem of maximizing terminal isoelastic utility. The relationship between the optimal portfolio, the optimal martingale measure in the dual problem and the optimal value function of the problem is described by an BSDE. For a totally...

In a continuous time, arbitrage free, non-complete market with a zero bond, we find the intertemporal price for risk to equal the standard deviation of the discounted variance optimal martingale measure divided by the zero bond price. We show the Hedging Numeraire to equal the Market Portfolio...

We examine the effects of non-portfolio risks on optimal portfolio choice. Examples of non-portfolio risks include, among others, uncertain labor income, uncertainty about the terminal value of fixed assets such as housing and uncertainty about future tax liabilities. In particular, while some...