UBC Mathematics Department

Colloquium Abstract: Alan J. King, Mathematical Sciences Department, IBM Research

Martingales and Duality in Contingent Claims Analysis: The discrete case

The pricing of contingent claims in the discrete time, discrete state case is analyzed from the perspective of linear programming duality. Arbitrage and the existence of martingales on security price filtrations are shown to be dual concepts. Buyers and writers of contingent claims agree on a risk-free price, however the writer may make nonzero profits in incomplete markets.

Return to this week's seminars