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1

No, this approach to the mean-variance model should not be interpreted as an optimal hedging strategy in terms of asset $B$. Given $w_A$, solving for $Y$ simply provides the solution for the total dollar amount of the $B$ side of the portfolio that completes and satisfies the $w_A + w_B = 1$ constraint, if that constraint is in fact kept intact somewhere in ...


2

Note that for the replicating portfolio to be self-financing it suffices that (1): $$\lambda_t=\frac{V_t-h_tS_t}{B_t}$$ where I have changed the notation by designating by $B_t$ the money market account: $$B_t=B_0e^{rt}$$ Hence, because the portfolio is self-financing, its dynamics are: $$\begin{align} dV_t&=\left(\frac{V_t-h_tS_t}{B_t}\right)dB_t+...


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