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Applications of Weak Convergence for Hedging of American and Game Options (2009)
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BibTeX
@MISC{Dolinsky09applicationsof,
author = {Yan Dolinsky},
title = {Applications of Weak Convergence for Hedging of American and Game Options },
year = {2009}
}
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Abstract
This paper studies stability of Dynkin’s games value under weak convergence. We use these results to approximate game options prices with path dependent payoffs in continuous time models by sequence of game options prices in discrete time models which can be calculated by dynamical programming algorithms. We also show that shortfall risks of American options in a sequence of multinomial approximations of the multidimensional Black–Scholes (BS) market converge to the corresponding quantities for similar American options in the multidimensional BS market with path dependent payoffs. In comparison to previous papers we work under more general convergence of underlying processes, as well, as weaker condition on the payoffs.
Keyphrases
weak convergence game option path dependent payoff shortfall risk market converge discrete time model similar american option dynamical programming algorithm underlying process american option previous paper approximate game option price multinomial approximation paper study stability game option price multidimensional black scholes general convergence multidimensional b market corresponding quantity continuous time model dynkin game value
