Strict Local Martingale Deflators and Pricing American Call-Type Options

Details Strict Local Martingale Deflators and Pricing American Call-Type Options Strict Local Martingale Deflators and Pricing American Call-Type Options

2009-08-07

arxiv.org/abs/0908.1082v4

Economy

Quantitative Finance

Pricing of Securities

Key Words: Strict local martingales, deflators, American call options

Scientific paper

We solve the problem of pricing and optimal exercise of American call-type
options in markets which do not necessarily admit an equivalent local
martingale measure. This resolves an open question proposed by Fernholz and
Karatzas [Stochastic Portfolio Theory: A Survey, Handbook of Numerical
Analysis, 15:89-168, 2009].

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