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Chapter 5: Static–Dynamic Hedging of ESOs
https://doi.org/10.1142/9789813209640_0005Cited by:0 (Source: Crossref)
Abstract:
In the standard no-arbitrage pricing theory, option positions are assumed to be hedged perfectly by continuously trading the underlying asset. The option price is computed from the conditional expectation of discounted payoff under a unique risk-neutral pricing measure. However, in many financial applications, the underlying asset is non-traded. Some examples include weather derivatives (Davis, 2001), employee stock options (Henderson, 2005; Leung and Sircar, 2009a), options on illiquid assets (Oberman and Zariphopoulou, 2003; Ankirchner et al., 2010)…
