Maximizing return model for option pricing in the incomplete market
Yinghua Li · Systems Engineering - Theory & Practice · 2011
This paper presents a new method to solve the option price in the incomplete market based on the maximizing profits.We analyze the investor's return in the multi tree model,then hedge the payoff of the option by means of the principle of return maximization at the expiration date of the option.Further, the option price is derived by the backward method in the multi tree model.Since the new one does not limit the form of the payoff function,it is easier to show the value of the option as the hedging and investing tools.Finally,Numerical examples indicate the new one is feasible and effective.