An Explicit Formula for Option Pricing in Discrete Incomplete Markets

Grażyna Wolczyńska ()
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Grażyna Wolczyńska: Institute of Mathematics, Jagiellonian University, Reymonta 4, 30–059 Kraków, Poland

International Journal of Theoretical and Applied Finance (IJTAF), 1998, vol. 01, issue 02, 283-288

Abstract: Some aspects of the pricing of European call option are disscussed. We consider the simplest case of an incomplete market in the situation when the model of the market is discrete and increments of shares prices have a multinomial distribution. We look for similarities between this model and the model of Cox, Ross and Rubinstein. In particular we consider the possibility of using induction backwards and we look for an optimal price and strategy using the method of risk-minimization step by step from the date of realizationTto 0.

Keywords: Incomplete markets; derivative securities (search for similar items in EconPapers)
Date: 1998
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DOI: 10.1142/S0219024998000151

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