Pricing American contingent claims by stochastic linear programming
Date
2009
Authors
Camcı, A.
Pınar, M. Ç.
Advisor
Instructor
Source Title
Optimization
Print ISSN
0233-1934
Electronic ISSN
1029-4945
Publisher
Taylor & Francis
Volume
58
Issue
6
Pages
627 - 640
Language
English
Type
Article
Journal Title
Journal ISSN
Volume Title
Abstract
We consider pricing of American contingent claims (ACC) as well as their special cases, in a multi-period, discrete time, discrete state space setting. Until now, determining the buyer's price for ACCs required solving an integer programme unlike European contingent claims for which solving a linear programme is sufficient. However, we show that a relaxation of the integer programming problem that is a linear programme, can be used to get the same lower bound for the price of the ACC.
Course
Other identifiers
Book Title
Keywords
American contingent claim, Hedging, Martingales, Pricing, Stochastic linear programming