About discrete hedging and option pricing

Dmitry Yakovlev and Dmitry Zhabin
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Dmitry Yakovlev: Tomsk Politechnic University
Dmitry Zhabin: Tomsk Politechnic University

Finance from EconWPA

Abstract: The approach that allows find European option price on the assumption of hedging at discrete times is proposed. The routine allows find the option price not for lognormal distribution functions of underlying asset only but for other classes of distribution functions too. It is shown that there exists a nonzero possibility that market parameters can take values such that to realize the hedging policy becomes impossible. This fact is not in contradiction with Black-Scholes option price model as long as this possibility tends to zero at the limit of continuous hedging.

Keywords: option pricing model; finance mathematical model; discrete hedging (search for similar items in EconPapers)
JEL-codes: G10 C60 D40 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-cfn, nep-fin and nep-rmg
Date: 2003-10-05
Note: Type of Document - Acrobat pdf; pages: 11

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http://129.3.20.41/eps/fin/papers/0310/0310005.pdf (application/pdf)

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Persistent link: http://EconPapers.repec.org/RePEc:wpa:wuwpfi:0310005

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