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Extremal measures and hedging in American options

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Abstract

We establish existence conditions for extremal probability measures, study their properties, and consider applications of such measures for solving the perfect hedging problem for American options on incomplete “frictionless” markets with finite horizon. We develop an algorithm for computing an American option and solve a corresponding new example with this algorithm.

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Correspondence to V. M. Khametov.

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Original Russian Text © V.M. Khametov, E.A. Shelemekh, 2016, published in Avtomatika i Telemekhanika, 2016, No. 6, pp. 121–144.

This paper was recommended for publication by A.I. Kibzun, a member of the Editorial Board

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Khametov, V.M., Shelemekh, E.A. Extremal measures and hedging in American options. Autom Remote Control 77, 1041–1059 (2016). https://doi.org/10.1134/S0005117916060084

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  • DOI: https://doi.org/10.1134/S0005117916060084

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