Kau, James B.; Keenan, Donald C.; Muller, Walter J.; … - In: Management Science 36 (1990) 12, pp. 1417-1431
Securities whose payoffs depend upon the actual path of the underlying state variables pose problems for standard backward-valuation techniques. In this paper, we show that there is a method of solving such problems that requires the addition of but a single auxiliary state variable. The...