Price systems constructed by optimal dynamic portfolios

Manfred Schäl

Mathematical Methods of Operations Research, 2000, vol. 51, issue 3, 375-397

Abstract: The paper studies connections between arbitrage and utility maximization in a discrete-time financial market. The market is incomplete. Thus one has several choices of equivalent martingale measures to price contingent claims. Davis determines a unique price for a contingent claim which is based on an optimal dynamic portfolio by use of a `marginal rate of substitution' argument. Here conditions will be given such that this price is determined by a martingale measure and thus by a consistent price system. The underlying utility function U is defined on the positive half-line. Then dynamic portfolios are admissible if the terminal wealth is positive. In case of the logarithmic utility function, the optimal dynamic portfolio is the numeraire portfolio. Copyright Springer-Verlag Berlin Heidelberg 2000

Keywords: Key words: martingale measure; utility maximization; optimal dynamic portfolio; pricing of options; dynamic programming; MSC Classification (1991): 90 A 09; 90 C 39; 90 C 40; 93 E 20; 60 G 42. (search for similar items in EconPapers)
Date: 2000
References: Add references at CitEc
Citations:

Downloads: (external link)
http://hdl.handle.net/10.1007/s001860000049 (text/html)
Access to full text is restricted to subscribers.

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:spr:mathme:v:51:y:2000:i:3:p:375-397

Ordering information: This journal article can be ordered from
http://www.springer.com/economics/journal/00186

DOI: 10.1007/s001860000049

Access Statistics for this article

Mathematical Methods of Operations Research is currently edited by Oliver Stein

More articles in Mathematical Methods of Operations Research from Springer, Gesellschaft für Operations Research (GOR), Nederlands Genootschap voor Besliskunde (NGB)
Bibliographic data for series maintained by Sonal Shukla () and Springer Nature Abstracting and Indexing ().