Asymptotic analysis of utility-based hedging strategies for small number of contingent claims

Abstract

We study the linear approximation of utility-based hedging strategies for small number of contingent claims. We show that this approximation is actually a mean-variance hedging strategy under an appropriate choice of a numéraire and a risk-neutral probability. In contrast to previous studies, we work in the general framework of a semimartingale financial model and a utility function defined on the positive real line.