Duplicating Contingent Claims by the Lagrange Method

Gregory C. Chow
Additional contact information
Gregory C. Chow: Princeton University

Finance from EconWPA

Abstract: The problem of investing y(0) dollars at time 0 to duplicate a contigent claim is formulated as a dynamic optimization problem and solved by the Langrange method. If the function defining dy(t) is concave in y(t), owing to costs of trading in incomplete markets, there is an economy of scale in producing many claims simultaneously, thus explaining the profitability of institutions in providing such financial services.

Keywords: Finance (search for similar items in EconPapers)
JEL-codes: G (search for similar items in EconPapers)
Date: 2003-06-10
Note: Published in Pacific Economic Review, 4:3 (1999)
View list of references

Downloads: (external link)
http://129.3.20.41/eps/fin/papers/0306/0306004.pdf (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: http://EconPapers.repec.org/RePEc:wpa:wuwpfi:0306004

Access Statistics for this paper

More papers in Finance from EconWPA
Series data maintained by EconWPA ().