Browsing by Subject "Contingent claim"

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Open Access
Expected gain-loss pricing and hedging of contingent claims in incomplete markets by linear programming
(Elsevier, 2010) Pınar, M. Ç.; Salih, A.; Camcı, A.
We analyze the problem of pricing and hedging contingent claims in the multi-period, discrete time, discrete state case using the concept of a "λ gain-loss ratio opportunity". Pricing results somewhat different from, but reminiscent of, the arbitrage pricing theorems of mathematical finance are obtained. Our analysis provides tighter price bounds on the contingent claim in an incomplete market, which may converge to a unique price for a specific value of a gain-loss preference parameter imposed by the market while the hedging policies may be different for different sides of the same trade. The results are obtained in the simpler framework of stochastic linear programming in a multi-period setting, and have the appealing feature of being very simple to derive and to articulate even for the non-specialist. They also extend to markets with transaction costs.
Open Access
Gain-loss pricing under ambiguity of measure
(E D P Sciences, 2010) Pınar, M. Ç.
Motivated by the observation that the gain-loss criterion, while offering economically meaningful prices of contingent claims, is sensitive to the reference measure governing the underlying stock price process (a situation referred to as ambiguity of measure), we propose a gain-loss pricing model robust to shifts in the reference measure. Using a dual representation property of polyhedral risk measures we obtain a one-step, gain-loss criterion based theorem of asset pricing under ambiguity of measure, and illustrate its use.