Intertemporal hedging demand

ID: intertemporal-hedging-demand

Intertemporal hedging demand adjusts the myopic risky position when investment opportunities depend on a stochastic state. Shared noise between wealth and that state contributes a cross derivative to the Hamilton-Jacobi-Bellman equation. In a complete diffusion market the optimal exposures combine the myopic market price of risk term and the value-gradient hedge term.

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