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Contingent claim pricing through a continuous time variational bargaining scheme

Author

Listed:
  • N. Azevedo

    (Universidade de Lisboa
    University of Minho
    Polytechnic Institute of Porto)

  • D. Pinheiro

    (Brooklyn College of the City University of New York)

  • S. Z. Xanthopoulos

    (University of the Aegean)

  • A. N. Yannacopoulos

    (Athens University of Economics and Business)

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.

Suggested Citation

  • N. Azevedo & D. Pinheiro & S. Z. Xanthopoulos & A. N. Yannacopoulos, 2018. "Contingent claim pricing through a continuous time variational bargaining scheme," Annals of Operations Research, Springer, vol. 260(1), pages 95-112, January.
    • Handle: RePEc:spr:annopr:v:260:y:2018:i:1:d:10.1007_s10479-015-2089-9
    DOI: 10.1007/s10479-015-2089-9
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    References listed on IDEAS

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    1. Lampros Boukas & Diogo Pinheiro & Alberto Pinto & Stylianos Xanthopoulos & Athanasios Yannacopoulos, 2009. "Behavioural and Dynamical Scenarios for Contingent Claims Valuation in Incomplete Markets," Papers 0903.3657, arXiv.org.
    2. Diogo Pinheiro & Alberto A. Pinto & S. Z. Xanthopoulos & A. N. Yannacopoulos, 2011. "A projected gradient dynamical system modeling the dynamics of bargaining," CEMAPRE Working Papers 1101, Centre for Applied Mathematics and Economics (CEMAPRE), School of Economics and Management (ISEG), Technical University of Lisbon.
    3. S. Z. Xanthopoulos & A. N. Yannacopoulos, 2008. "Scenarios For Price Determination In Incomplete Markets," International Journal of Theoretical and Applied Finance (IJTAF), World Scientific Publishing Co. Pte. Ltd., vol. 11(05), pages 415-445.
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