RISKY OPTIONS SIMPLIFIED

Martin Schweizer
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Martin Schweizer: Technische Universität Berlin, Fachbereich Mathematik, MA 7-4, Straße des 17. Juni 136, D – 10623 Berlin, Germany

International Journal of Theoretical and Applied Finance (IJTAF), 1999, vol. 02, issue 01, 59-82

Abstract: We study a general version of a quadratic approach to the pricing of options in an abstract financial market. The resulting price is the expectation of the option's discounted payoff under the variance-optimal signed martingale measure, and we give a very simple proof of this result. A conjecture of G. Wolczyńska essentially says that this measure coincides with the minimal signed martingale measure in a certain class of models. We show by a counterexample that this conjecture is false.

Keywords: Option pricing; Mean-variance hedging; Variance-optimal martingale measure; Minimal martingale measure; Risky options; JEL classification Numbers G10; 90A09 (search for similar items in EconPapers)
Date: 1999
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Persistent link: https://EconPapers.repec.org/RePEc:wsi:ijtafx:v:02:y:1999:i:01:n:s0219024999000054

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DOI: 10.1142/S0219024999000054

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