Arbitrage-free pricing of multi-person game claims in discrete time (Q503392): Difference between revisions

The authors introduce and study rather general multi-party financial derivatives in a discrete-time, arbitrage-free complete market defined on a finite probability space. The strategies of agents (called holders) yield various outcomes, in particular, exercising but also others. The payoff to each agent is distributed at termination dates which are stopping times depending on outcomes. At time zero holders pay certain amounts for the right to enter the contract to a specific agent called an issuer who in turn pays to holders specific amounts upon termination of contracts. The authors define notions of arbitrage and hedging for such contracts in a natural way and provide conditions for no arbitrage and superhedging valuations of such contracts which are closely related to the theory of multi-person games. The latter connection gave rise to the question which multi-person games admit optimal equilibrium and the authors describe several classes of such games (which they studied in previous papers).