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Behavioural and dynamical scenarios for contingent claims valuation in incomplete markets

Author

Listed:
  • L. Boukas
  • Diogo Pinheiro

    (CEMAPRE, School of Economics and Management (ISEG), Technical University of Lisbon)

  • Alberto A. Pinto

    (Department of Mathematics, Faculty of Science, University of Porto)

  • S. Z. Xanthopoulos

    (University of the Aegean, Samos, Greece)

  • A. N. Yannacopoulos

    (Athens University of Economics and Business, Athens, Greece)

Abstract

We study the problem of determination of asset prices in an incomplete market proposing three different but related scenarios. One scenario uses a market game approach whereas the other two are based on risk sharing or regret minimizing considerations. Dynamical schemes modeling the convergence of the buyer's and of the seller's prices to a unique price are proposed.

Suggested Citation

  • L. Boukas & Diogo Pinheiro & Alberto A. Pinto & S. Z. Xanthopoulos & A. N. Yannacopoulos, 2011. "Behavioural and dynamical scenarios for contingent claims valuation in incomplete markets," CEMAPRE Working Papers 1103, Centre for Applied Mathematics and Economics (CEMAPRE), School of Economics and Management (ISEG), Technical University of Lisbon.
    • Handle: RePEc:cma:wpaper:1103
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    References listed on IDEAS

    as
    1. Andrea Gam & Paolo Pellizzari, 2002. "Utility based pricing of contingent claims in incomplete markets," Applied Mathematical Finance, Taylor & Francis Journals, vol. 9(4), pages 241-260.
    2. John Geanakoplos & Heracles M. Polemarchakis, 1985. "Existence, Regularity, and Constrained Suboptimality of Competitive Allocations When the Asset Market Is Incomplete," Cowles Foundation Discussion Papers 764, Cowles Foundation for Research in Economics, Yale University.
    3. A. Gamba & P. Pellizzari, 1999. "Utility based pricing of contingent claims," Finance 9902003, University Library of Munich, Germany, revised 14 Oct 2002.
    4. Magill, Michael & Shafer, Wayne, 1991. "Incomplete markets," Handbook of Mathematical Economics, in: W. Hildenbrand & H. Sonnenschein (ed.), Handbook of Mathematical Economics, edition 1, volume 4, chapter 30, pages 1523-1614, Elsevier.
    5. S. Z. Xanthopoulos & A. N. Yannacopoulos, 2008. "Scenarios For Price Determination In Incomplete Markets," International Journal of Theoretical and Applied Finance (IJTAF), World Scientific Publishing Co. Pte. Ltd., vol. 11(05), pages 415-445.
    6. Kalyan Chatterjee & William Samuelson, 1983. "Bargaining under Incomplete Information," Operations Research, INFORMS, vol. 31(5), pages 835-851, October.
    7. Peter B. Linhart, 2001. "original papers : Bargaining solutions with non-standard objectives," Review of Economic Design, Springer;Society for Economic Design, vol. 6(2), pages 225-239.
    8. Flam, Sjur Didrik, 1996. "Approaches to economic equilibrium," Journal of Economic Dynamics and Control, Elsevier, vol. 20(9-10), pages 1505-1522.
    9. W. Hildenbrand & H. Sonnenschein (ed.), 1991. "Handbook of Mathematical Economics," Handbook of Mathematical Economics, Elsevier, edition 1, volume 4, number 4.
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    Cited by:

    1. D. Pinheiro & A. A. Pinto & S. Z. Xanthopoulos & A. N. Yannacopoulos, 2011. "A projected gradient dynamical system modeling the dynamics of bargaining," Papers 1105.1767, arXiv.org, revised Sep 2011.
    2. N. Azevedo & D. Pinheiro & S. Z. Xanthopoulos & A. N. Yannacopoulos, 2018. "Contingent claim pricing through a continuous time variational bargaining scheme," Annals of Operations Research, Springer, vol. 260(1), pages 95-112, January.

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