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Strict Local Martingale Deflators and Pricing American Call-Type Options

  • Erhan Bayraktar
  • Constantinos Kardaras
  • Hao Xing

We solve the problem of pricing and optimal exercise of American call-type options in markets which do not necessarily admit an equivalent local martingale measure. This resolves an open question proposed by Fernholz and Karatzas [Stochastic Portfolio Theory: A Survey, Handbook of Numerical Analysis, 15:89-168, 2009].

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Paper provided by in its series Papers with number 0908.1082.

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Date of creation: Aug 2009
Date of revision: Dec 2009
Handle: RePEc:arx:papers:0908.1082
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  1. Alexander Cox & David Hobson, 2005. "Local martingales, bubbles and option prices," Finance and Stochastics, Springer, vol. 9(4), pages 477-492, October.
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