Preliminary remarks on option pricing and dynamic hedging

arXiv1206.1504MaRDI QIDQ6233526FDOQ6233526

Authors: Michel Fliess, Cédric Join 

Publication date: 7 June 2012

Abstract: An elementary arbitrage principle and the existence of trends in financial time series, which is based on a theorem published in 1995 by P. Cartier and Y. Perrin, lead to a new understanding of option pricing and dynamic hedging. Intricate problems related to violent behaviors of the underlying, like the existence of jumps, become then quite straightforward by incorporating them into the trends. Several convincing computer experiments are reported.

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