Applications of weak convergence for hedging of game options

DOI10.1214/09-AAP675zbMATH Open1195.91156arXiv0908.3661MaRDI QIDQ1958505FDOQ1958505

Authors: Yan Dolinsky 

Publication date: 4 October 2010

Published in: The Annals of Applied Probability (Search for Journal in Brave)

Abstract: In this paper we consider Dynkin's games with payoffs which are functions of an underlying process. Assuming extended weak convergence of underlying processes ${S^{(n)}}_{n=0}^{infty}$ to a limit process $S$ we prove convergence Dynkin's games values corresponding to ${S^{(n)}}_{n=0}^{infty}$ to the Dynkin's game value corresponding to $S$. We use these results to approximate game options prices with path dependent payoffs in continuous time models by a sequence of game options prices in discrete time models which can be calculated by dynamical programming algorithms. In comparison to previous papers we work under more general convergence of underlying processes, as well as weaker conditions on the payoffs.

Full work available at URL: https://arxiv.org/abs/0908.3661

Recommendations

• Optimal stopping and strong approximation theorems†
• Hedging of game options under model uncertainty in discrete time
• Error estimates for binomial approximations of game options
• Weak convergence for approximation of American option prices
• The Continuous Time Nonzero-Sum Dynkin Game Problem and Application in Game Options

zbMATH Keywords

weak convergencegame optionsDynkin games

Mathematics Subject Classification ID

Derivative securities (option pricing, hedging, etc.) (91G20) Central limit and other weak theorems (60F05) 2-person games (91A05) Stopping times; optimal stopping problems; gambling theory (60G40) Probabilistic games; gambling (91A60)

Cites Work

• Title not available (Why is that?)
• Uniform Central Limit Theorems
• Tightness criteria for laws of semimartingales
• Stopping times and tightness
• CONVERGENCE OF AMERICAN OPTION VALUES FROM DISCRETE‐ TO CONTINUOUS‐TIME FINANCIAL MODELS¹
• Game options
• Convergence of the Critical Price In the Approximation of American Options
• Title not available (Why is that?)
• Optimal stopping and strong approximation theorems†
• Error estimates for binomial approximations of game options
• Le jeu de dynkin en theorie generale sans l'hypothese de mokobodski
• Optimal Stopping in Sequential Games With or Without a Constraint of Always Terminating
• Sur l'approximation des réduites. (On the approximation of residues)
• Extended convergence to continuous in probability processes with independent increments
• Functional convergence of Snell envelopes: Applications to American options approximations
• Binomial Approximations for Barrier Options of Israeli Style
• Convergence of values in optimal stopping and convergence of optimal stopping times

Cited In (7)

• Error estimates for multinomial approximations of American options in a class of jump diffusion models
• Optimal stopping and strong approximation theorems†
• Weak approximation of second-order BSDEs
• Dynkin's games and Israeli options
• The disorder problem for purely jump Lévy processes with completely monotone jumps
• Shortfall risk approximations for American options in the multidimensional Black-Scholes model
• Strong diffusion approximation in averaging and value computation in Dynkin's games

This page was built for publication: Applications of weak convergence for hedging of game options

Report a bug (only for logged in users!)Click here to report a bug for this page (MaRDI item Q1958505)