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Equal risk pricing under convex trading constraints

Ivan Guo and Song-Ping Zhu

Journal of Economic Dynamics and Control, 2017, vol. 76, issue C, 136-151

Abstract: In an incomplete market model where convex trading constraints are imposed upon the underlying assets, it is no longer possible to obtain unique arbitrage-free prices for derivatives using standard replication arguments. Most existing derivative pricing approaches involve the selection of a suitable martingale measure or the optimisation of utility functions as well as risk measures from the perspective of a single trader.

Keywords: Derivative pricing; Trading constraints; Equal risk price; Short-selling ban (search for similar items in EconPapers)
Date: 2017
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Handle: RePEc:eee:dyncon:v:76:y:2017:i:c:p:136-151