Continuous-time portfolio selection and option pricing under risk-minimization criterion in an incomplete market

Xinfeng Ruan; Wenli Zhu; Jiexiang Huang; Shuang Li

doi:10.1155/2013/175269

Continuous-time portfolio selection and option pricing under risk-minimization criterion in an incomplete market

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

^*Corresponding author for this work

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

Abstract

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.

Original language	English
Article number	175269
Journal	Journal of Applied Mathematics
Volume	2013
DOIs	https://doi.org/10.1155/2013/175269
Publication status	Published - 2013
Externally published	Yes

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title = "Continuous-time portfolio selection and option pricing under risk-minimization criterion in an incomplete market",

abstract = "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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AU - Zhu, Wenli

AU - Huang, Jiexiang

AU - Li, Shuang

PY - 2013

Y1 - 2013

N2 - 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.

AB - 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.

UR - https://www.scopus.com/pages/publications/84888860022

U2 - 10.1155/2013/175269

DO - 10.1155/2013/175269

M3 - Article

AN - SCOPUS:84888860022

SN - 1110-757X

VL - 2013

JO - Journal of Applied Mathematics

JF - Journal of Applied Mathematics

M1 - 175269

ER -

Continuous-time portfolio selection and option pricing under risk-minimization criterion in an incomplete market

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