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Strategic pricing of financial options


  • Bieta, Volker
  • Broll, Udo
  • Milde, Hellmuth
  • Siebel, Wilfried


The mainstream model of option pricing is based on an exogenously given process of price movements. The implication of this assumption is that price movements are not affected by actions of market participants. However, if we assume that there are indeed impacts on the price movements it no longer possible to apply the standard pricing models. As a result we need an approach explaining interdependent actions. Game theory is in a position to offer proper olutions. This paper applies game theoretic concepts to determine option prices. Consequently, both the option price and the underlying´s expiration price are endogenously determined.

Suggested Citation

  • Bieta, Volker & Broll, Udo & Milde, Hellmuth & Siebel, Wilfried, 2009. "Strategic pricing of financial options," Dresden Discussion Paper Series in Economics 16/09, Technische Universität Dresden, Faculty of Business and Economics, Department of Economics.
  • Handle: RePEc:zbw:tuddps:1609

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    References listed on IDEAS

    1. Broll, Udo & Wahl, Jack E. & Zilcha, Itzhak, 1995. "Indirect hedging of exchange rate risk," Journal of International Money and Finance, Elsevier, vol. 14(5), pages 667-678, October.
    2. Friberg, Richard & Wilander, Fredrik, 2008. "The currency denomination of exports -- A questionnaire study," Journal of International Economics, Elsevier, vol. 75(1), pages 54-69, May.
    3. Sandmo, Agnar, 1971. "On the Theory of the Competitive Firm under Price Uncertainty," American Economic Review, American Economic Association, vol. 61(1), pages 65-73, March.
    4. Broll, Udo & Wahl, Jack E. & Zilcha, Itzhak, 1999. "Hedging exchange rate risk: The multiperiod case," Research in Economics, Elsevier, vol. 53(4), pages 365-380, December.
    5. Friend, Irwin & Blume, Marshall E, 1975. "The Demand for Risky Assets," American Economic Review, American Economic Association, vol. 65(5), pages 900-922, December.
    6. Kawai, Masahiro & Zilcha, Itzhak, 1986. "International trade with forward-futures markets under exchange rate and price uncertainty," Journal of International Economics, Elsevier, vol. 20(1-2), pages 83-98, February.
    7. Hey, John D, 1987. "The Dynamic Competitive Firm under Spot Price Uncertainty," The Manchester School of Economic & Social Studies, University of Manchester, vol. 55(1), pages 1-12, March.
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    More about this item


    game theory; Nash equilibrium; option pricing; real option;

    JEL classification:

    • G13 - Financial Economics - - General Financial Markets - - - Contingent Pricing; Futures Pricing
    • C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games


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