The Application of backward stochastic differential equation with stopping time in hedging American contingent claims

Bo Wang and Ruili Song

Chaos, Solitons & Fractals, 2009, vol. 42, issue 5, 2629-2634

Abstract: We consider a more general wealth process with a drift coefficient which is Lipschitz continuous and the portfolio process with convex constraint. We convert the problem of hedging American contingent claims into the problem of minimal solution of backward stochastic differential equation with stopping time. We adopt the penalization method for constructing the minimal solution of stochastic differential equations and obtain the upper hedging price of American contingent claims.

Date: 2009
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Persistent link: https://EconPapers.repec.org/RePEc:eee:chsofr:v:42:y:2009:i:5:p:2629-2634

DOI: 10.1016/j.chaos.2009.03.170

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