We review the relations between adjoints of stochastic control problems with the derivative of the value function, and the latter with the value function of a stopping problem. These results are applied to the pricing of contingent claims.

A market is described by two correlated asset prices. But only one of them is traded while the contingent claim is a function of both assets. We solve the mean-variance hedging prob- lem completely and prove that the optimal strategy consists of a modified pure hedge expressible in terms of the...