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Option pricing with hedging at fixed trading dates

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 Schäl'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. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Applied Mathematical Finance Taylor & Francis

Option pricing with hedging at fixed trading dates

Applied Mathematical Finance , Volume 3 (2): 24 – Jun 1, 1996

Option pricing with hedging at fixed trading dates

Abstract

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 Schäl'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...
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Publisher
Taylor & Francis
Copyright
Copyright Taylor & Francis Group, LLC
ISSN
1466-4313
eISSN
1350-486X
DOI
10.1080/13504869600000007
Publisher site
See Article on Publisher Site

Abstract

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 Schäl'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.

Journal

Applied Mathematical FinanceTaylor & Francis

Published: Jun 1, 1996

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