On the pricing of contingent claims with frictions

Authors
Bensoussan, A Julien, H
Citation
A. Bensoussan et H. Julien, On the pricing of contingent claims with frictions, MATH FINANC, 10(2), 2000, pp. 89-108
Citations number
6
Categorie Soggetti
Economics
Journal title
MATHEMATICAL FINANCE
ISSN journal
09601627 → ACNP
Volume
10
Issue
2
Year of publication
2000
Pages
89 - 108
Database
ISI
SICI code
0960-1627(200004)10:2<89:OTPOCC>2.0.ZU;2-L
Abstract
This paper studies the problem of pricing contingent claims in a market whi ch has frictions in the form of costs, such as penalty functions correspond ing to constraints. An arbitrage-free interval is identified, and a fair pr ice based upon utility functions is proposed. It provides a framework to st udy incomplete markets that is simplier than the one related to constraints on portfolios introduced by Karatzas and Kou.