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Contingent claim pricing through a continuous time variational bargaining scheme. (English) Zbl 1404.91254

Summary: We consider a variational problem modelling the evolution with time of two probability measures representing the subjective beliefs of a couple of agents engaged in a continuous-time bargaining pricing scheme with the goal of finding a unique price for a contingent claim in a continuous-time financial market. This optimization problem is coupled with two finite dimensional portfolio optimization problems, one for each agent involved in the bargaining scheme. Under mild conditions, we prove that the optimization problem under consideration here admits a unique solution, yielding a unique price for the contingent claim.

MSC:

91G20 Derivative securities (option pricing, hedging, etc.)
91B26 Auctions, bargaining, bidding and selling, and other market models
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