PRICING OF RAINBOW OPTIONS: GAME THEORETIC APPROACH

Z. Hucki () and V. N. Kolokoltsov ()
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Z. Hucki: Department of Coputing and Mathematics, Nottingham Trent University, Nottingham NG1 4BU, United Kingdom
V. N. Kolokoltsov: Department of Statistics, University of Warwick, CV4 7AL, UK;

International Game Theory Review (IGTR), 2007, vol. 09, issue 02, 215-242

Abstract: The general approach for the pricing of rainbow (or colored) options with fixed transaction costs is developed from the game theoretic point of view. The evolution of the underlying common stocks is considered in discrete time. The main result consists in the explicit calculation of the hedge price for a variety of the rainbow options including option delivering the best ofJrisky assets and cash, calls on the maximum ofJrisky assets and the multiple-strike options. The results obtained can be also used in the framework of real options.

Keywords: Coloured (or rainbow) options; explicit formulas for hedge; transaction costs; interval model; submodular functions (search for similar items in EconPapers)
JEL-codes: B4 C0 C6 C7 D5 D7 M2 (search for similar items in EconPapers)
Date: 2007
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Citations: View citations in EconPapers (4)

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DOI: 10.1142/S0219198907001370

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