Option pricing with hedging at fixed trading dates
We introduce trading restrictions in the well known Black-Scholes model and Cox-Ross-Rubinstein model, in the sense that hedging is only allowed at some fixed trading dates. As a consequence, the financial market is incomplete in both modified models. Applying Schweizer's (and Schal's) variance-optimal criterion for pricing and hedging general claims, we first analyse the dynamic consistency of the strategies which minimize the variance of the total loss due to hedging a given claim. Then we establish some convergence results, when the number of trading dates is either kept fixed or increases to infinity.
Year of publication: |
1996
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Authors: | Mercurio, Fabio ; Vorst, Ton |
Published in: |
Applied Mathematical Finance. - Taylor & Francis Journals, ISSN 1350-486X. - Vol. 3.1996, 2, p. 135-158
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Publisher: |
Taylor & Francis Journals |
Saved in:
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