Binomial approximations of shortfall risk for game options

DOI10.1214/07-AAP503MaRDI QIDQ957516zbMATH OpenFDO

Authors Yan Dolinsky, Yuri Kifer

Publication date 27 November 2008

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

Full work available at URL https://arxiv.org/abs/0811.1896

zbMATH Keywords

Skorokhod embeddingbinomial approximationgame optionsDynkin gamesshortfall riskcomplete and incomplete markets

Mathematics Subject Classification ID

Derivative securities (option pricing, hedging, etc.) (91G20) Strong limit theorems (60F15) 2-person games (91A05) Stochastic games, stochastic differential games (91A15)

Abstract: We show that the shortfall risk of binomial approximations of game (Israeli) options converges to the shortfall risk in the corresponding Black--Scholes market considering Lipschitz continuous path-dependent payoffs for both discrete- and continuous-time cases. These results are new also for usual American style options. The paper continues and extends the study of Kifer [Ann. Appl. Probab. 16 (2006) 984--1033] where estimates for binomial approximations of prices of game options were obtained. Our arguments rely, in particular, on strong invariance principle type approximations via the Skorokhod embedding, estimates from Kifer [Ann. Appl. Probab. 16 (2006) 984--1033] and the existence of optimal shortfall hedging in the discrete time established by Dolinsky and Kifer [Stochastics 79 (2007) 169--195].

Recommendations

• On shortfall risk minimization for game options
• Error estimates for binomial approximations of game options
• Error estimates for binomial approximations of game put options
• Correction: Error estimates for binomial approximations of game options
• Hedging with risk for game options in discrete time
• Hedging of game options under model uncertainty in discrete time
• Shortfall risk minimising strategies in the binomial model: characterisation and convergence
• Risk minimization for game options in markets imposing minimal transaction costs
• Robustness of shortfall risk minimising strategies in the binomial model
• A simple derivation of risk-neutral probability in the binomial option pricing model

Cites work

• scientific article; zbMATH DE number 51724 (Why is no real title available?)
• scientific article; zbMATH DE number 1227086 (Why is no real title available?)
• Efficient hedging: cost versus shortfall risk
• Error estimates for binomial approximations of game options
• Game options
• Hedging with risk for game options in discrete time
• On dynamic measure of risk
• Optimal Stopping in Sequential Games With or Without a Constraint of Always Terminating
• Optimal stopping and strong approximation theorems†
• Stochastic differential equations. An introduction with applications.
• The efficient hedging problem for American options

Cited in

(9)

• Limit theorems for partial hedging under transaction costs
• The efficient hedging problem for American options
• On shortfall risk minimization for game options
• Defaultable game options in a hazard process model
• Error estimates for binomial approximations of game put options
• Dynkin's games and Israeli options
• Recombining tree approximations for optimal stopping for diffusions
• Error estimates for binomial approximations of game options
• Shortfall risk approximations for American options in the multidimensional Black-Scholes model

This page was built for publication: Binomial approximations of shortfall risk for game options

Report a bug (only for logged in users!)Click here to report a bug for this page (MaRDI item Q957516)