Applications of weak convergence for hedging of game options

DOI10.1214/09-AAP675MaRDI QIDQ1958505zbMATH OpenFDO

Authors Yan Dolinsky

Publication date 4 October 2010

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

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

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)

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.

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
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Cites work

• scientific article; zbMATH DE number 1222792 (Why is no real title available?)
• scientific article; zbMATH DE number 3274494 (Why is no real title available?)
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Cited in

(7)

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

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