On Duality Principle for Hedging Strategies in Diffusion Models

In option pricing theory, the well-known duality principle proposes that calculation of risk-neutral prices of call options can be carried out to calculation of risk-neutral prices of put options in corresponding dual models. In the present paper we discuss a number of options in diffusion models, f...

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Bibliographic Details
Published in:Theory of probability and its applications 2012-01, Vol.56 (3), p.376-402
Main Authors: Ivanov, R. V., Shiryaev, A. N.
Format: Article
Language:English
Subjects:
Derivatives
Diffusion
Duality principle
Hedging
Inequality
Mathematical models
Prices
Pricing
Put & call options
Strategy
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Summary:In option pricing theory, the well-known duality principle proposes that calculation of risk-neutral prices of call options can be carried out to calculation of risk-neutral prices of put options in corresponding dual models. In the present paper we discuss a number of options in diffusion models, for which we show how the problem of deriving hedging strategies for call options can be transformed into the problem of deriving hedging strategies for put options in dual models. We consider also Magrabe options and some exotic options. [PUBLICATION ABSTRACT]
ISSN:0040-585X
1095-7219
DOI:10.1137/S0040585X97985480