Continuous-Time Portfolio Selection and Option Pricing under Risk-Minimization Criterion in an Incomplete Market | Zendy

Xinfeng Ruan | Zendy; Wenli Zhu | Zendy; Jiexiang Huang | Zendy; Shuang Li | Zendy

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Continuous-Time Portfolio Selection and Option Pricing under Risk-Minimization Criterion in an Incomplete Market

Author(s) -

Xinfeng Ruan,

Wenli Zhu,

Jiexiang Huang,

Shuang Li

Publication year - 2013

Publication title -

journal of applied mathematics

Language(s) - English

Resource type - Journals

SCImago Journal Rank - 0.307

H-Index - 43

eISSN - 1687-0042

pISSN - 1110-757X

DOI - 10.1155/2013/175269

Subject(s) - martingale (probability theory) , portfolio , derivative (finance) , martingale pricing , incomplete markets , mathematics , valuation of options , selection (genetic algorithm) , minification , econometrics , mathematical optimization , local martingale , computer science , economics , financial economics , neoclassical economics , artificial intelligence

We study option pricing with risk-minimization criterion in an incomplete market where the dynamics of the risky underlying asset are governed by a jump diffusion equation. We obtain the Radon-Nikodym derivative in the minimal martingale measure and a partial integrodifferential equation (PIDE) of European call option. In a special case, we get the exact solution for European call option by Fourier transformation methods. Finally, we employ the pricing kernel to calculate the optimal portfolio selection by martingale methods

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