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Game options

Author

Listed:
  • Yuri Kifer

    () (Institute of Mathematics, The Hebrew University, Givat Ram 91904 Jerusalem, Israel Manuscript)

Abstract

I introduce and study new derivative securities which I call game options (or Israeli options to put them in line with American, European, Asian, Russian etc. ones). These are contracts which enable both their buyer and seller to stop them at any time and then the buyer can exercise the right to buy (call option) or to sell (put option) a specified security for certain agreed price. If the contract is terminated by the seller he must pay certain penalty to the buyer. A more general case of game contingent claims is considered. The analysis is based on the theory of optimal stopping games (Dynkin's games). Game options can be sold cheaper than usual American options and their introduction could diversify financial markets.

Suggested Citation

  • Yuri Kifer, 2000. "Game options," Finance and Stochastics, Springer, vol. 4(4), pages 443-463.
  • Handle: RePEc:spr:finsto:v:4:y:2000:i:4:p:443-463 Note: received: June 1999; final version received: November 1999
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    References listed on IDEAS

    as
    1. Eckhard Platen, 2006. "A Benchmark Approach To Finance," Mathematical Finance, Wiley Blackwell, vol. 16(1), pages 131-151.
    2. Thomas Goll & Ludger R├╝schendorf, 2001. "Minimax and minimal distance martingale measures and their relationship to portfolio optimization," Finance and Stochastics, Springer, vol. 5(4), pages 557-581.
    3. F├Âllmer, Hans & Kramkov, D. O., 1997. "Optional decompositions under constraints," SFB 373 Discussion Papers 1997,31, Humboldt University of Berlin, Interdisciplinary Research Project 373: Quantification and Simulation of Economic Processes.
    4. Robert Fernholz & Ioannis Karatzas, 2005. "Relative arbitrage in volatility-stabilized markets," Annals of Finance, Springer, vol. 1(2), pages 149-177, November.
    5. Schweizer, Martin, 1999. "A minimality property of the minimal martingale measure," Statistics & Probability Letters, Elsevier, vol. 42(1), pages 27-31, March.
    Full references (including those not matched with items on IDEAS)

    More about this item

    Keywords

    American option pricing; optimal stopping game;

    JEL classification:

    • G13 - Financial Economics - - General Financial Markets - - - Contingent Pricing; Futures Pricing
    • C73 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Stochastic and Dynamic Games; Evolutionary Games

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