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Contingent claim valuation in a market with different interest rates. (English) Zbl 0836.90010

Summary: The problem of contingent claim valuation in a market with a higher interest rate for borrowing than for lending is discussed. We give results which cover especially the European call and put options. The method used is based on transforming the problem to suitable auxiliary markets with only one interest rate for borrowing and lending and is adapted from a paper of J. Cvitanić and I. Karatzas [Ann. Appl. Probab. 2, No. 4, 767–818 (1992; Zbl 0770.90002)], where the authors study constrained portfolio problems.

MSC:

91G20 Derivative securities (option pricing, hedging, etc.)
91G10 Portfolio theory

Citations:

Zbl 0770.90002
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References:

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