Related papers: American options in an imperfect market with defau…
This paper mainly discusses the American option's hedging strategies via binomialmodel and the basic idea of pricing and hedging American option. Although the essential scheme of hedging is almost the same as European option, small…
This paper studies the utility maximization on the terminal wealth with random endowments and proportional transaction costs. To deal with unbounded random payoffs from some illiquid claims, we propose to work with the acceptable portfolios…
The problem of determining the European-style option price in the incomplete market has been examined within the framework of stochastic optimization. An analytic method based on the discrete dynamic programming equation (Bellman equation)…
In the paper we consider the problem of valuation of American options written on dividend-paying assets whose price dynamics follow the classical multidimensional Black and Scholes model. We provide a general early exercise premium…
A variational inequality for pricing the perpetual American option and the corresponding difference equation are considered. First, the maximum principle and uniqueness of the solution to variational inequality for pricing the perpetual…
We consider the problem of option hedging in a market with proportional transaction costs. Since super-replication is very costly in such markets, we replace perfect hedging with an expected loss constraint. Asymptotic analysis for small…
This work addresses the problem of pricing American basket options in a multivariate setting, which includes among others, the Bachelier and the Black-Scholes models. In high dimensions, nonlinear partial differential equation methods for…
In this paper, we consider the problem of hedging Asian options in financial markets with transaction costs. For this, we use the asymptotic hedging approach. The main task of asymptotic hedging in financial markets with transaction costs…
We develop a finite horizon continuous time market model, where risk averse investors maximize utility from terminal wealth by dynamically investing in a risk-free money market account, a stock written on a default-free dividend process,…
This work focuses on the indifference pricing of American call option underlying a non-traded stock, which may be partially hedgeable by another traded stock. Under the exponential forward measure, the indifference price is formulated as a…
We develop a model for indifference pricing in derivatives markets where price quotes have bid-ask spreads and finite quantities. The model quantifies the dependence of the prices and hedging portfolios on an investor's beliefs, risk…
We study the problem of super-replication for game options under proportional transaction costs. We consider a multidimensional continuous time model, in which the discounted stock price process satisfies the conditional full support…
We introduce a setup of model uncertainty in discrete time. In this setup we derive dual expressions for the super--replication prices of game options with upper semicontinuous payoffs. We show that the super--replication price is equal to…
We propose a versatile Monte-Carlo method for pricing and hedging options when the market is incomplete, for an arbitrary risk criterion (chosen here to be the expected shortfall), for a large class of stochastic processes, and in the…
American and Bermudan-type financial instruments are often priced with specific Monte Carlo techniques whose efficiency critically depends on the effective dimensionality of the problem and the available computational power. In our work we…
The present article provides an efficient and accurate hybrid method to price American standard options in certain jump-diffusion models as well as American barrier-type options under the Black & Scholes framework. Our method generalizes…
The question of pricing and hedging a given contingent claim has a unique solution in a complete market framework. When some incompleteness is introduced, the problem becomes however more difficult. Several approaches have been adopted in…
We consider the pricing of American put options in a model-independent setting: that is, we do not assume that asset prices behave according to a given model, but aim to draw conclusions that hold in any model. We incorporate market…
In this work, we propose an algorithm to price American options by directly solving the dual minimization problem introduced by Rogers. Our approach relies on approximating the set of uniformly square integrable martingales by a finite…
We study optimal stopping problems related to the pricing of perpetual American options in an extension of the Black-Merton-Scholes model in which the dividend and volatility rates of the underlying risky asset depend on the running values…