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Option pricing in incomplete discrete markets
Authors:Grazyna Wolczynska
Abstract:Various methods of option pricing in discrete time models are discussed. The classical risk minimization method often results in negative prices and a natural modification is proposed. Another method of risk minimization using an inductive procedure as in the Cox-Ross-Rubinstein model is also proposed. The definition of the risk interpreted as the maximum of possible loss is discussed.
Keywords:Incomplete Markets  Derivative Securities
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