Optimal replication of random claims by ordinary integrals with applications in finance
MetadataShow full item record
By the classical Martingale Representation Theorem, replication of random vectors can be achieved via stochastic integrals or solutions of stochastic differential equations. We introduce a new approach to replication of random vectors via adapted differentiable processes generated by a controlled ordinary differential equation. We found that the solution of this replication problem exists and is not unique. This leads to a new optimal control problem: find a replicating process that is minimal in an integral norm. We found an explicit solution of this problem. Possible applications to portfolio selection problems and to bond pricing models are suggested.
Copyright © 2013 SIAM. Published with permission.
Showing items related by title, author, creator and subject.
Boyes, Mark; Tebbutt, B.; Preece, K.; Badcock, N. (2017)Objective: Children with reading difficulties are at elevated risk for externalising (e.g., conduct disorder) and internalising (e.g., anxiety and depression) mental health problems. Reading ability is also negatively ...
Wales, N.; Andersen, K.; Cappellini, E.; Avila-Arcos, M.; Gilbert, Thomas (2014)Ancient DNA (aDNA) recovered from archaeobotanical remains can provide key insights into many prominent archaeological research questions, including processes of domestication, past subsistence strategies, and human ...
When 'trust in top management' matters to organisational performance and effectiveness: the impact of senior manager role-modelling and group cohesivenessEng, Ngiang Jiang (2010)While ‘trust in top management’ matters to organisational performance and effectiveness, low trust in top management remains an issue in many organisations despite their efforts in building trust. The persistence of such ...