Behavioural and Dynamical Scenarios for Contingent Claims Valuation in Incomplete Markets

TL;DR

This paper explores three different scenarios for valuing contingent claims in incomplete markets, introducing dynamic models for price convergence using game theory, risk sharing, and regret minimization.

Contribution

It presents novel dynamic schemes for asset price convergence in incomplete markets, integrating game theory and risk considerations.

Findings

Market game approach for pricing

Dynamic convergence schemes proposed

Models unify buyer and seller prices

Abstract

We study the problem of determination of asset prices in an incomplete market proposing three different but related scenarios. One scenario uses a market game approach whereas the other two are based on risk sharing or regret minimizing considerations. Dynamical schemes modeling the convergence of the buyer's and of the seller's prices to a unique price are proposed.