Under pressure to choose between the U.S. and China, Southeast Asian countries have adopted a hedging strategy: deepening economic relations with China while strengthening security cooperation with the U.S. How does the region's public view this strategy? With tensions rising in South China Sea territorial disputes, are more nationalistic individuals more likely to oppose hedging? Using an original public opinion survey conducted in the Philippines, we find that while an overwhelming majority of respondents were concerned about the territorial disputes, more nationalistic Filipinos were no more concerned than less nationalistic ones. Further, more nationalistic Filipinos were more likely to view economic relations with China as important for the Philippines and to approve of Duterte's China policy, which follows the logic of hedging. These surprising findings suggest that under the shadow of great-power competition, the link between domestic politics and foreign policy is nuanced in the Philippines, and Southeast Asia in general.

Vietnam has tried to maintain a delicate balance between the United States and China by pursuing a hedging strategy. In a shifting strategic environment marked by structural uncertainty caused by the rise of China, weaker Southeast Asian states like Vietnam are projecting a non-alignment posture. However, this rational behavior is not the product of systemic factors alone but also certain domestic political dynamics. We argue that regime legitimation – how the Vietnam Communist Party seeks to generate and sustain internal and external legitimacy – weighs heavily on Vietnam's strategy toward US–China competition. In particular, three legitimation strategies employed by the Vietnam Communist Party – performance-based legitimation, nationalism-based legitimation vis-à-vis China, and defensive legitimation vis-à-vis “hostile forces” – produce dynamics that ensure Hanoi does not get inadvertently pulled into the orbit of either Beijing or Washington. Theoretically, this article contributes to the literature on domestic determinants of foreign policy with a focus on regime legitimation. Empirically, we seek to supplement the discussion on the salience and relevance of domestic politics in informing Southeast Asian states' strategic calculation amid great-power competition.

This article investigates the optimal hedging problem of the European contingent claims written on non-tradable assets. We assume that the risky assets satisfy jump diffusion models with a common jump process which reflects the correlated jump risk. The non-tradable asset and jump risk lead to an incomplete financial market. Hence, the cross-hedging method will be used to reduce the potential risk of the contingent claims seller. First, we obtain an explicit closed-form solution for the locally risk-minimizing hedging strategies of the European contingent claims by using the Föllmer–Schweizer decomposition. Then, we consider the hedging for a European call option as a special case. The value of the European call option under the minimal martingale measure is derived by the Fourier transform method. Next, some semi-closed solution formulae of the locally risk-minimizing hedging strategies for the European call option are obtained. Finally, some numerical examples are provided to illustrate the sensitivities of the optimal hedging strategies. By comparing the optimal hedging strategies when the underlying asset is a non-tradable asset or a tradable asset, we find that the liquidity risk has a significant impact on the optimal hedging strategies.

In this paper we study the problem of pricing contingent claims for a large investor (i.e. the coefficients of the price equation can also depend on the wealth process of the hedger) in an incomplete market where the portfolios are constrained. We formulate this problem so as to find the minimal solution of forward-backward stochastic differential equations (FBSDEs) with constraints. We use the penalization method to construct a sequence of FBSDEs without constraints, and we show that the solutions of these equations converge to the minimal solution we are interested in.