Pricing multi-asset contingent claims in a multi-dimensional binomial market
Mathematical Finance
2023-03-01 v2 Optimization and Control
Probability
Pricing of Securities
Abstract
We consider an incomplete multi-asset binomial market model. We prove that for a wide class of contingent claims the extremal multi-step martingale measure is a power of the corresponding single-step extremal martingale measure. This allows for closed form formulas for the bounds of a no-arbitrage contingent claim price interval. We construct a feasible algorithm for computing those boundaries as well as for the corresponding hedging strategies. Our results apply, for example, to European basket call and put options and Asian arithmetic average options.
Keywords
Cite
@article{arxiv.2106.13283,
title = {Pricing multi-asset contingent claims in a multi-dimensional binomial market},
author = {Jarek Kędra and Assaf Libman and Victoria Steblovskaya},
journal= {arXiv preprint arXiv:2106.13283},
year = {2023}
}
Comments
30 pages; title slightly changed