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      Lower hedging of American contingent claims with minimal surplus risk in finite-state financial markets by mixed-integer linear programming

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      Author
      Pınar, M. Ç.
      Date
      2014
      Source Title
      Discrete Applied Mathematics
      Print ISSN
      0166-218X
      Electronic ISSN
      1872-6771
      Volume
      164
      Issue
      1
      Pages
      304 - 312
      Language
      English
      Type
      Article
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      Abstract
      The lower hedging problem with a minimal expected surplus risk criterion in incomplete markets is studied for American claims in finite state financial markets. It is shown that the lower hedging problem with linear expected surplus criterion for American contingent claims in finite state markets gives rise to a non-convex bilinear programming formulation which admits an exact linearization. The resulting mixed-integer linear program can be readily processed by available software.
      Keywords
      American contingent claims
      Hedging
      Martingales
      Mixed-integer linear programming
      Pricing
      Mixed integer linear programming
      Permalink
      http://hdl.handle.net/11693/26742
      Published Version (Please cite this version)
      http://dx.doi.org/10.1016/j.dam.2011.10.010
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