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About discrete hedging and option pricing

Author

Listed:
  • Dmitry Yakovlev

    (Tomsk Politechnic University)

  • Dmitry Zhabin

    (Tomsk Politechnic University)

Abstract

The 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.

Suggested Citation

  • Dmitry Yakovlev & Dmitry Zhabin, 2003. "About discrete hedging and option pricing," Finance 0310005, University Library of Munich, Germany.
    • Handle: RePEc:wpa:wuwpfi:0310005
    Note: Type of Document - Acrobat pdf; pages: 11
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    File URL: https://econwpa.ub.uni-muenchen.de/econ-wp/fin/papers/0310/0310005.pdf
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    More about this item

    Keywords

    option pricing model; finance mathematical model; discrete hedging;
    All these keywords.

    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, Pricing, and Design - - - General

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