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Contingent claim pricing through a continuous time variational bargaining scheme

  • S.I.: Advances of OR in Commodities and Financial Modelling
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Abstract

We consider a variational problem modelling the evolution with time of two probability measures representing the subjective beliefs of a couple of agents engaged in a continuous-time bargaining pricing scheme with the goal of finding a unique price for a contingent claim in a continuous-time financial market. This optimization problem is coupled with two finite dimensional portfolio optimization problems, one for each agent involved in the bargaining scheme. Under mild conditions, we prove that the optimization problem under consideration here admits a unique solution, yielding a unique price for the contingent claim.

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Author information

Authors and Affiliations

  1. CEMAPRE, ISEG, Universidade de Lisboa, Lisbon, Portugal

    N. Azevedo

  2. Economics Department, University of Minho, Braga, Portugal

    N. Azevedo

  3. ESEIG, Polytechnic Institute of Porto, Porto, Portugal

    N. Azevedo

  4. Department of Mathematics, Brooklyn College of the City University of New York, Brooklyn, NY, USA

    D. Pinheiro

  5. Department of Mathematics, University of the Aegean, Samos, Greece

    S. Z. Xanthopoulos

  6. Department of Statistics, Athens University of Economics and Business, Athens, Greece

    A. N. Yannacopoulos

Authors
  1. N. Azevedo
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  2. D. Pinheiro
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  3. S. Z. Xanthopoulos
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  4. A. N. Yannacopoulos
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Corresponding author

Correspondence to N. Azevedo.

Additional information

We thank the four anonymous referees for their useful comments and suggestions. N. Azevedo’s research was supported by FCT—Fundação para a Ciência e a Tecnologia grant with reference SFRH–BD–67186–2009. N. Azevedo also thanks the financial support of CEMAPRE and FCT—Fundação para a Ciência e a Tecnologia through the project UID/Multi/00491/2013. D. Pinheiro research was supported by the PSC-CUNY research awards TRADA-45-487 and TRADA-46-251, jointly funded by the Professional Staff Congress and the City University of New York.

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Azevedo, N., Pinheiro, D., Xanthopoulos, S.Z. et al. Contingent claim pricing through a continuous time variational bargaining scheme. Ann Oper Res 260, 95–112 (2018). https://doi.org/10.1007/s10479-015-2089-9

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  • DOI: https://doi.org/10.1007/s10479-015-2089-9

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