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Option pricing in incomplete discrete markets 

Author: Grazyna Wolczynska
DOI: 10.1080/135048698334628
Publication Frequency: 6 issues per year
Published in: journal Applied Mathematical Finance, Volume 5, Issue 3 & 4 September 1998 , pages 165 - 179
Number of References: 4
Formats available: PDF (English)
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Abstract

Various methods of option pricing in discrete time models are discussed. The classical risk minimization method often results in negative prices and a natural modification is proposed. Another method of risk minimization using an inductive procedure as in the Cox-Ross-Rubinstein model is also proposed. The definition of the risk interpreted as the maximum of possible loss is discussed.
Keywords: Incomplete Markets; Derivative Securities
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