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Pricing and hedging of American contingent claims in incomplete markets

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Abstract

This paper studies the pricing and hedging for American contingent claims in an incomplete market under mild conditions using the numeraire method to avoid changes of probability measure. When the market is incomplete, prices can not be derived by no-arbitrage arguments, since it is not possible to replicate the payoff of a given contingent claim by a controlled portfolio of the basic securities. We adopt the method of fictitious completion of [1] to provide an upper bound and a lower bound for the actual market price of the claim.

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  1. Wang Guilan

    Present address: Department of Mathematics, Wuhan University, 430072, Wuhan, China

Authors and Affiliations

  1. Institute of Applied Mathematics, the Chinese Academy of Sciences, 100080, Beijing, China

    Wang Guilan

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  1. Wang Guilan
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Guilan, W. Pricing and hedging of American contingent claims in incomplete markets. Acta Mathematicae Applicatae Sinica 15, 144–152 (1999). https://doi.org/10.1007/BF02720489

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  • DOI: https://doi.org/10.1007/BF02720489

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