An Approximation Pricing Algorithm in an Incomplete Market: A Differential Geometric Approach

• Main Authors: Gao, Yuan, Lim, Kian Guan, Ng, Kah Hwa
• Format: text
• Language: English
• Published: Institutional Knowledge at Singapore Management University 2004
• Subjects: Incomplete markets; asset pricing; Riemannian manifold; cross entropy; Finance and Financial Management; Portfolio and Security Analysis
• Online Access: https://ink.library.smu.edu.sg/lkcsb_research/2545; https://search.ebscohost.com/login.aspx?direct=true&db=buh&AN=14442764&site=ehost-live
• Institution: Singapore Management University

The minimal distance equivalent martingale measure (EMM) defined in Goll and Rⁿschendorf (2001) is the arbitrage-free equilibrium pricing measure. This paper provides an algorithm to approximate its density and the fair price of any contingent claim in an incomplete market. We first approximate the...