Option Pricing under Risk-Minimization Criterion in an Incomplete Market with the Finite Difference Method

Option Pricing under Risk-Minimization Criterion in an Incomplete Market with the Finite Difference Method

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-diffe...

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Main Authors: Xinfeng Ruan, Wenli Zhu, Shuang Li, Jiexiang Huang
Format: Article
Language:English
Published: Hindawi Limited 2013-01-01
Series:Mathematical Problems in Engineering
Online Access:http://dx.doi.org/10.1155/2013/165727
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spelling doaj-3096b887890942f684aae5cf07d15a232020-11-24T22:42:41ZengHindawi LimitedMathematical Problems in Engineering1024-123X1563-51472013-01-01201310.1155/2013/165727165727Option Pricing under Risk-Minimization Criterion in an Incomplete Market with the Finite Difference MethodXinfeng Ruan0Wenli Zhu1Shuang Li2Jiexiang Huang3School of Economic Mathematics, Southwestern University of Finance and Economics, Chengdu 611130, ChinaSchool of Economic Mathematics, Southwestern University of Finance and Economics, Chengdu 611130, ChinaDepartment of Mathematics and Statistics, Curtin University, Perth, WA 6102, AustraliaSchool of Economic Mathematics, Southwestern University of Finance and Economics, Chengdu 611130, ChinaWe 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.http://dx.doi.org/10.1155/2013/165727
collection DOAJ
language English
format Article
sources DOAJ
author Xinfeng Ruan
Wenli Zhu
Shuang Li
Jiexiang Huang
spellingShingle Xinfeng Ruan
Wenli Zhu
Shuang Li
Jiexiang Huang
Option Pricing under Risk-Minimization Criterion in an Incomplete Market with the Finite Difference Method
Mathematical Problems in Engineering
author_facet Xinfeng Ruan
Wenli Zhu
Shuang Li
Jiexiang Huang
author_sort Xinfeng Ruan
title Option Pricing under Risk-Minimization Criterion in an Incomplete Market with the Finite Difference Method
title_short Option Pricing under Risk-Minimization Criterion in an Incomplete Market with the Finite Difference Method
title_full Option Pricing under Risk-Minimization Criterion in an Incomplete Market with the Finite Difference Method
title_fullStr Option Pricing under Risk-Minimization Criterion in an Incomplete Market with the Finite Difference Method
title_full_unstemmed Option Pricing under Risk-Minimization Criterion in an Incomplete Market with the Finite Difference Method
title_sort option pricing under risk-minimization criterion in an incomplete market with the finite difference method
publisher Hindawi Limited
series Mathematical Problems in Engineering
issn 1024-123X
1563-5147
publishDate 2013-01-01
description 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.
url http://dx.doi.org/10.1155/2013/165727
work_keys_str_mv AT xinfengruan optionpricingunderriskminimizationcriterioninanincompletemarketwiththefinitedifferencemethod
AT wenlizhu optionpricingunderriskminimizationcriterioninanincompletemarketwiththefinitedifferencemethod
AT shuangli optionpricingunderriskminimizationcriterioninanincompletemarketwiththefinitedifferencemethod
AT jiexianghuang optionpricingunderriskminimizationcriterioninanincompletemarketwiththefinitedifferencemethod
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