Option pricing under risk-minimization criterion in an incomplete market with the finite difference method

Xinfeng Ruan; Wenli Zhu; Shuang Li; Jiexiang Huang

doi:10.1155/2013/165727

Option pricing under risk-minimization criterion in an incomplete market with the finite difference method

Xinfeng Ruan^*, Wenli Zhu, Shuang Li, Jiexiang Huang

^*Corresponding author for this work

Research output: Contribution to journal › Article › peer-review

4 Citations (Scopus)

Abstract

We study option pricing with risk-minimization criterion in an incomplete market where the dynamics of the risky underlying asset is governed by a jump diffusion equation with stochastic volatility. We obtain the Radon-Nikodym derivative for the minimal martingale measure and a partial integro-differential equation (PIDE) of European option. The finite difference method is employed to compute the European option valuation of PIDE.

Original language	English
Article number	165727
Journal	Mathematical Problems in Engineering
Volume	2013
DOIs	https://doi.org/10.1155/2013/165727
Publication status	Published - 2013
Externally published	Yes

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title = "Option pricing under risk-minimization criterion in an incomplete market with the finite difference method",

abstract = "We study option pricing with risk-minimization criterion in an incomplete market where the dynamics of the risky underlying asset is governed by a jump diffusion equation with stochastic volatility. We obtain the Radon-Nikodym derivative for the minimal martingale measure and a partial integro-differential equation (PIDE) of European option. The finite difference method is employed to compute the European option valuation of PIDE.",

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AU - Ruan, Xinfeng

AU - Zhu, Wenli

AU - Li, Shuang

AU - Huang, Jiexiang

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Y1 - 2013

N2 - We study option pricing with risk-minimization criterion in an incomplete market where the dynamics of the risky underlying asset is governed by a jump diffusion equation with stochastic volatility. We obtain the Radon-Nikodym derivative for the minimal martingale measure and a partial integro-differential equation (PIDE) of European option. The finite difference method is employed to compute the European option valuation of PIDE.

AB - We study option pricing with risk-minimization criterion in an incomplete market where the dynamics of the risky underlying asset is governed by a jump diffusion equation with stochastic volatility. We obtain the Radon-Nikodym derivative for the minimal martingale measure and a partial integro-differential equation (PIDE) of European option. The finite difference method is employed to compute the European option valuation of PIDE.

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U2 - 10.1155/2013/165727

DO - 10.1155/2013/165727

M3 - Article

AN - SCOPUS:84878654956

SN - 1024-123X

VL - 2013

JO - Mathematical Problems in Engineering

JF - Mathematical Problems in Engineering

M1 - 165727

ER -

Option pricing under risk-minimization criterion in an incomplete market with the finite difference method

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