About discrete hedging and option pricing
AbstractThe approach that allows find European option price on the assumption of hedging at discrete times is proposed. The routine allows find the option price not for lognormal distribution functions of underlying asset only but for other classes of distribution functions too. It is shown that there exists a nonzero possibility that market parameters can take values such that to realize the hedging policy becomes impossible. This fact is not in contradiction with Black-Scholes option price model as long as this possibility tends to zero at the limit of continuous hedging.
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Bibliographic InfoPaper provided by EconWPA in its series Finance with number 0310005.
Length: 11 pages
Date of creation: 05 Oct 2003
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Note: Type of Document - Acrobat pdf; pages: 11
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option pricing model; finance mathematical model; discrete hedging;
Find related papers by JEL classification:
- G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)
- C60 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - General
- D40 - Microeconomics - - Market Structure and Pricing - - - General
This paper has been announced in the following NEP Reports:
- NEP-ALL-2003-10-12 (All new papers)
- NEP-CFN-2003-10-12 (Corporate Finance)
- NEP-FIN-2003-10-12 (Finance)
- NEP-RMG-2003-10-12 (Risk Management)
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