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Behavioural and dynamical scenarios for contingent claims valuation in incomplete markets

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Author Info

  • L. Boukas
  • Diogo Pinheiro

    (CEMAPRE, School of Economics and Management (ISEG), Technical University of Lisbon)

  • Alberto A. Pinto

    (Department of Mathematics, Faculty of Science, University of Porto)

  • S. Z. Xanthopoulos

    (University of the Aegean, Samos, Greece)

  • A. N. Yannacopoulos

    (Athens University of Economics and Business, Athens, Greece)

Abstract

We study the problem of determination of asset prices in an incomplete market proposing three different but related scenarios. One scenario uses a market game approach whereas the other two are based on risk sharing or regret minimizing considerations. Dynamical schemes modeling the convergence of the buyer's and of the seller's prices to a unique price are proposed.

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Bibliographic Info

Paper provided by Centre for Applied Mathematics and Economics (CEMAPRE), School of Economics and Management (ISEG), Technical University of Lisbon in its series CEMAPRE Working Papers with number 1103.

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Length: 18 pages
Date of creation: Oct 2011
Date of revision:
Handle: RePEc:cma:wpaper:1103

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Related research

Keywords: Incomplete markets; market games; risk sharing; regret; dynamical schemes;

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References

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  1. Andrea Gam & Paolo Pellizzari, 2002. "Utility based pricing of contingent claims in incomplete markets," Applied Mathematical Finance, Taylor & Francis Journals, vol. 9(4), pages 241-260.
  2. Flam, Sjur Didrik, 1996. "Approaches to economic equilibrium," Journal of Economic Dynamics and Control, Elsevier, vol. 20(9-10), pages 1505-1522.
  3. Peter B. Linhart, 2001. "original papers : Bargaining solutions with non-standard objectives," Review of Economic Design, Springer, vol. 6(2), pages 225-239.
  4. A. Gamba & P. Pellizzari, 1999. "Utility based pricing of contingent claims," Finance 9902003, EconWPA, revised 14 Oct 2002.
  5. Magill, Michael & Shafer, Wayne, 1991. "Incomplete markets," Handbook of Mathematical Economics, in: W. Hildenbrand & H. Sonnenschein (ed.), Handbook of Mathematical Economics, edition 1, volume 4, chapter 30, pages 1523-1614 Elsevier.
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Cited by:
  1. D. Pinheiro & A. A. Pinto & S. Z. Xanthopoulos & A. N. Yannacopoulos, 2011. "A projected gradient dynamical system modeling the dynamics of bargaining," Papers 1105.1767, arXiv.org, revised Sep 2011.

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