Lower hedging of American contingent claims with minimal surplus risk in finite-state financial markets by mixed-integer linear programming
Author
Pınar, M. Ç.
Date
2014Source Title
Discrete Applied Mathematics
Print ISSN
0166-218X
Electronic ISSN
1872-6771
Volume
164
Issue
1
Pages
304 - 312
Language
English
Type
ArticleItem Usage Stats
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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 claimsHedging
Martingales
Mixed-integer linear programming
Pricing
Mixed integer linear programming