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Preliminary remarks on option pricing and dynamic hedging

Author

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  • Michel Fliess

    (LIX)

  • C'edric Join

    (INRIA Saclay - Ile de France, CRAN)

Abstract

An elementary arbitrage principle and the existence of trends in financial time series, which is based on a theorem published in 1995 by P. Cartier and Y. Perrin, lead to a new understanding of option pricing and dynamic hedging. Intricate problems related to violent behaviors of the underlying, like the existence of jumps, become then quite straightforward by incorporating them into the trends. Several convincing computer experiments are reported.

Suggested Citation

  • Michel Fliess & C'edric Join, 2012. "Preliminary remarks on option pricing and dynamic hedging," Papers 1206.1504, arXiv.org.
    • Handle: RePEc:arx:papers:1206.1504
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    References listed on IDEAS

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    1. Emmanuel Nicholas Barron & Robert Jensen, 1990. "A Stochastic Control Approach to the Pricing of Options," Mathematics of Operations Research, INFORMS, vol. 15(1), pages 49-79, February.
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    Cited by:

    1. Michel Fliess & C'edric Join, 2013. "Systematic and multifactor risk models revisited," Papers 1312.5271, arXiv.org.
    2. Michel Fliess & Cédric Join, 2013. "Systematic and multifactor risk models revisited," Post-Print hal-00920175, HAL.
    3. Gerasimos G. Rigatos, 2016. "Boundary Control Of The Black–Scholes Pde For Option Dynamics Stabilization," Annals of Financial Economics (AFE), World Scientific Publishing Co. Pte. Ltd., vol. 11(02), pages 1-29, June.
    4. G. Rigatos & P. Siano, 2018. "Stabilization of Mortgage Price Dynamics Using a Boundary PDE Feedback Control Approach," Journal of Quantitative Economics, Springer;The Indian Econometric Society (TIES), vol. 16(1), pages 37-56, March.

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