Pricing of Rainbow Options: Game Theoretic Approach

The general approach for the pricing of rainbow (or colored) options with fixed transaction costs is developed from the game theoretic point of view. The evolution of the underlying common stocks is considered in discrete time. The main result consists in the explicit calculation of the hedge price for a variety of the rainbow options including option delivering the best of J risky assets and cash, calls on the maximum of J risky assets and the multiple-strike options. The results obtained can be also used in the framework of real options.