Approximations and asymptotics of upper hedging prices in multinomial models

DOI10.1007/S13160-011-0047-8MaRDI QIDQ692029zbMATH OpenOpenAlexFDO

Authors Ryuichi Nakajima, Masayuki Kumon

Publication date 4 December 2012

Published in Japan Journal of Industrial and Applied Mathematics (Search for Journal in Brave)

Full work available at URL https://arxiv.org/abs/1007.4372

zbMATH Keywords

incomplete marketstochastic controlCox-Ross-Rubinstein formulacontingent claimBlack-Scholes-Barenblatt equationtrinomial model

Mathematics Subject Classification ID

Derivative securities (option pricing, hedging, etc.) (91G20) Linear programming (90C05) Optimal stochastic control (93E20) Probabilistic games; gambling (91A60)

Abstract: We give an exposition and numerical studies of upper hedging prices in multinomial models from the viewpoint of linear programming and the game-theoretic probability of Shafer and Vovk. We also show that, as the number of rounds goes to infinity, the upper hedging price of a European option converges to the solution of the Black-Scholes-Barenblatt equation.

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Cited in

(3)

• Game-theoretic derivation of upper hedging prices of multivariate contingent claims and submodularity
• Efficient Hedging When Asset Prices Follow A Geometric Poisson Process With Unknown Intensities
• Properties of multinomial lattices with cumulants for option pricing and hedging

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