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Dynamic Hedging in Incomplete Markets: A Simple Solution

Basak, Suleyman; Chabakauri, Georgy - C.E.P.R. Discussion Papers - 2011

Despite much work on hedging in incomplete markets, the literature still lacks tractable dynamic hedges in plausible … deviate unless she can pre-commit to follow them. We apply our results to the discrete hedging problem of derivatives when … specialized to the Black-Scholes setting. We also generalize our results to richer settings to study dynamic hedging with Poisson …

Persistent link: https://www.econbiz.de/10009024486

Option Pricing with Discrete Rebalancing

Prigent, J.-L.; Renault, O.; Scaillet, O. - Institut de Recherche Économique et Sociale (IRES), … - 1999

is then provided together with the hedging strategy underlying portfolio adjustments. Under adequate conditions on the …

Persistent link: https://www.econbiz.de/10004985285

Weak convergence in credit risk

Colino, Jesús P. - Departamento de Estadistica, Universidad Carlos III de … - 2008

In the present paper, we study both the approximation of a continuous-time model by a sequence of discrete-time price models driven by semimargingales with credit risk, and the convergence of these price processes (in terms of the triplets) under a framework that allows the practitioner a...

Persistent link: https://www.econbiz.de/10005190193

Hedging American contingent claims with constrained portfolios

Karatzas, Ioannis; (*), S. G. Kou - In: Finance and Stochastics 2 (1998) 3, pp. 215-258

The valuation theory for American Contingent Claims, due to Bensoussan (1984) and Karatzas (1988), is extended to deal with constraints on portfolio choice, including incomplete markets and borrowing/short-selling constraints, or with different interest rates for borrowing and lending. In the...

Persistent link: https://www.econbiz.de/10005390719

Pseudo--Arbitrage - A new Approach to Pricing and Hedging in Incomplete Markets

Sommer, Daniel - University of Bonn, Germany - 1998

We develop a new approach to pricing and hedging contingent claims in incomplete markets. Mimicking as closely as … can derive unique prices and corresponding optimal hedging strategies without invoking specific assumptions on preferences … explicitly taking into account optimal hedging strategies leads to positive market prices of risk for volatility even if the …

Persistent link: https://www.econbiz.de/10004968199

Investment, Consumption and Hedging under Incomplete Markets

Miao, Junjian; Wang, Neng - Department of Economics, Boston University - 2005

accelerates investment. These results may be reversed for the °ow payo® case. Finally, hedging a®ects investment decisions by … changing the expected growth of wealth and reduc- ing the agent's exposure to idiosyncratic risk. The agent's hedging demand is …

Persistent link: https://www.econbiz.de/10004972846

A utility maximization approach to hedging in incomplete markets

Kallsen, Jan - In: Mathematical Methods of Operations Research 50 (1999) 2, pp. 321-338

hedging problems in frictionless, incomplete markets. Copyright Springer-Verlag Berlin Heidelberg 1999 …

Persistent link: https://www.econbiz.de/10010950103

UTILITY BASED PRICING AND HEDGING OF JUMP DIFFUSION PROCESSES WITH A VIEW TO APPLICATIONS

ZAHN, JOCHEN - In: International Journal of Theoretical and Applied … 15 (2012) 07, pp. 1250052-1

We discuss utility based pricing and hedging of jump diffusion processes with emphasis on the practical applicability …

Persistent link: https://www.econbiz.de/10011011296

MODELLING THE BID AND ASK PRICES OF ILLIQUID CDSs

WALKER, MICHAEL B. - In: International Journal of Theoretical and Applied … 15 (2012) 06, pp. 1250045-1

CDS (credit default swap) contracts that were initiated some time ago frequently have spreads and/or maturities that are not available on the current market of CDSs, and are thus illiquid. This article introduces an incomplete-market approach to valuing illiquid CDSs that, in contrast to the...

Persistent link: https://www.econbiz.de/10010575477

Entrepreneurial Finance and Non-diversifiable Risk

Chen, Hui; Miao, Jianjun; Wang, Neng - Department of Economics, Boston University - 2009

Entrepreneurs face significant non-diversifiable business risks. We build a dynamic incompletemarkets model of entrepreneurial finance to demonstrate the important implications of nondiversifiable risks for entrepreneurs’ interdependent consumption, portfolio allocation, financing, investment,...

Persistent link: https://www.econbiz.de/10004991552