Pricing American contingent claims by stochastic linear programming

Date
2009
Authors
Camcı, A.
Pınar, M. Ç.
Advisor
Supervisor
Co-Advisor
Co-Supervisor
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
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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.

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Book Title
Keywords
American contingent claim, Hedging, Martingales, Pricing, Stochastic linear programming
Citation
Published Version (Please cite this version)