Pricing Model for Incomplete Market Sergei Fedotov Department of Mathematics UMIST PO Box 88 Manchester M 60 1 QD United Kingdom
نویسنده
چکیده
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) has been developed that gives the general formalism for determining the option price and the optimal trading strategy (optimal control policy) that reduces total risk inherent in writing the option. The basic purpose of the paper is to present an effective algorithm that can be used in practice.
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Telegrafenberg C 4 Potsdam , Deutschland and Department of Mathematics UMIST PO Box 88 Manchester M 60 1 QD United Kingdom
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) has been developed that gives the general formalism for determining the option price and the optimal trading strategy (optimal control policy) that reduces t...
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