Abstract
Purpose
This paper aims to study the conditions for the hedging portfolio of any contingent claim on bonds to have no bank account part.
Design/methodology/approach
Hedging and Malliavin calculus techniques recently developed under a stochastic string framework are applied.
Findings
A necessary and sufficient condition for the hedging portfolio to have no bank account part is found. This condition is applied to a barrier option, and an example of a contingent claim whose hedging portfolio has a bank account part different from zero is provided.
Originality/value
To the best of the authors’ knowledge, this is the first time that this issue has been addressed in the literature.
Subject
General Economics, Econometrics and Finance
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