Article ID | Journal | Published Year | Pages | File Type |
---|---|---|---|---|
4616081 | Journal of Mathematical Analysis and Applications | 2014 | 25 Pages |
Abstract
This paper is concerned in the option pricing in a discrete time incomplete market. We emphasize the interplay between option pricing and residual risk as well as imperfect hedging. It has been shown that the value of a European option satisfies a hyperbolic, rather than parabolic, partial differential equation. The closed-form solution for this hyperbolic equation has been obtained, which will collapse to the Black–Scholes formula as the time scaling converges to zero.
Related Topics
Physical Sciences and Engineering
Mathematics
Analysis
Authors
Xiao-Tian Wang, Xiang-Qian Liang, Ze-Min Zhou,