Title :
Stochastic optimization approach to options pricing
Author_Institution :
Dept. of Math., Univ. of Manchester Inst. of Sci. & Technol., UK
Abstract :
The problem of determining the European-style option price in incomplete markets has been examined within the framework of stochastic optimization. An analytic method based on a discrete dynamic programming equation (Bellman equation) has been developed that gives the general formalism for determining the option price and the optimal trading strategy (optimal feedback control) that reduces total risk inherent on writing the option
Keywords :
dynamic programming; feedback; finance; optimal control; Bellman equation; European-style option price; discrete dynamic programming equation; incomplete markets; optimal feedback control; optimal trading strategy; options pricing; stochastic optimization approach; Bonding; Equations; Feedback control; Mathematics; Portfolios; Pricing; Risk analysis; Risk management; Stochastic processes; Writing;
Conference_Titel :
American Control Conference, 1999. Proceedings of the 1999
Conference_Location :
San Diego, CA
Print_ISBN :
0-7803-4990-3
DOI :
10.1109/ACC.1999.783609
