In this paper we show that a Kelly trader is indifferent to trade derivative if and only the no-arbitrage price uniquely given by minimal martingale measure price, thus providing natural selection mechanism for option pricing in incomplete markets. We also unique indifference results market equilibrium sense no can improve magnitude of his instantaneous Sharpe ratio, trading derivative, actions...

The actuarial and the financial approach to the pricing of risk remain different despite the increasingly direct interconnection of financial and insurance markets. The difference can be summarized as pricing based on classical risk theory (insurance) vs. non-arbitrage pricing (finance). However, comparable pricing principles are of importance when it comes to transferring insurance risk to fin...

Given a stock price process, we analyse the potential of arbitrage by insiders in context short-selling prohibitions. We introduce notion minimal supermartingale measure, and its properties connection to martingale measure. In particular, establish conditions when both fail exist. These correspond case insider's information set includes some non null events that are perceived as having probabil...

We analyze how the presence of financial markets affects optimal exercise real options for a risk averse agent. Extending results Shackleton and Sodal (2005), we characterize rule in terms benchmark portfolio, even case an incomplete market, facilitating minimal martingale measure. unambiguously effect idiosyncratic on speed option. further show that systematic can accelerate execution reduce v...

The increasing interest in financial innovation of enterprises has heightened the need for the knowledge of accurate pricing for derivatives in actual discrete-time incomplete market, especially for futures, the most actively traded derivatives in China. Nevertheless, even contingent claim pricing in such markets have few previous researches concentrated on, quite apart from futures. This paper...

We analyze the joint convergence of sequences of discounted stock prices and Radon-Nicodym derivatives of the minimal martingale measure when interest rates are stochastic. Therefrom we deduce the convergence of option values in either complete or incomplete markets. We illustrate the general result by two main examples: a discrete time i.i.d. approximation of a Merton type pricing model for op...

The indifference valuation problem in incomplete binomial models is analyzed. The model is general in that the stochastic factor which generates the marlet incompleteness may affect the transition propabilities and/or the values of the traded asset as well as the claim’s payoff. Two pricing algorithms are constructed which use, respectively, the minimal martingale and minimal entropy measures. ...

We derive representations for optimal martingale measures in a two-factor Markovian model, by seeking ramifications of a distortion power solution (Zariphopoulou (2001)) of the primal utility maximisation problem, for the dual problem. This provides an alternative to existing methods in the literature for characterising optimal measures, and gives new results in the form of a novel representati...