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A pricing formula for delayed claims: Appreciating the past to value the future

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Listed:
  • Enrico Biffis
  • Beniamin Goldys
  • Cecilia Prosdocimi
  • Margherita Zanella

Abstract

We consider the valuation of contingent claims with delayed dynamics in a Black&Scholes complete market model. We find a pricing formula that can be decomposed into terms reflecting the market values of the past and the present, showing how the valuation of future cashflows cannot abstract away from the contribution of the past. As a practical application, we provide an explicit expression for the market value of human capital in a setting with wage rigidity. The formula we derive has successfully been used to explicitly solve the infinite dimensional stochastic control problems addressed in different settings.

Suggested Citation

  • Enrico Biffis & Beniamin Goldys & Cecilia Prosdocimi & Margherita Zanella, 2015. "A pricing formula for delayed claims: Appreciating the past to value the future," Papers 1505.04914, arXiv.org, revised Jul 2022.
    • Handle: RePEc:arx:papers:1505.04914
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    References listed on IDEAS

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    11. repec:dau:papers:123456789/11984 is not listed on IDEAS
    12. Fabbri, Giorgio & Gozzi, Fausto, 2008. "Solving optimal growth models with vintage capital: The dynamic programming approach," Journal of Economic Theory, Elsevier, vol. 143(1), pages 331-373, November.
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    Cited by:

    1. Djehiche, Boualem & Gozzi, Fausto & Zanco, Giovanni & Zanella, Margherita, 2022. "Optimal portfolio choice with path dependent benchmarked labor income: A mean field model," Stochastic Processes and their Applications, Elsevier, vol. 145(C), pages 48-85.
    2. Enrico Biffis & Fausto Gozzi & Cecilia Prosdocimi, 2020. "Optimal portfolio choice with path dependent labor income: the infinite horizon case," Papers 2002.00201, arXiv.org.

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