ISSN:
1432-1122
Keywords:
Key words: Dynamic programming, contingent claims, non-arbitrage, real assets
;
JEL classification: E22, D46, G12, G31
;
Mathematics Subject Classification (1991):93E20, 90A09, 93E03, 90A11
Source:
Springer Online Journal Archives 1860-2000
Topics:
Mathematics
,
Economics
Notes:
Abstract. We consider a general model for an investment producing a single commodity, and, assuming that there exists a traded asset spanning the corresponding market, we prove a “verification theorem” which relates the solution of an appropriate differential equation with the investment's contingent claim price. In this way, we show in a mathematically rigorous way that the contingent claim approach and the dynamic programming approach to the problem of asset valuation are equivalent, modulo parameter calibration. Our analysis can be used in a straightforward way to address a big number of investment models.
Type of Medium:
Electronic Resource
URL:
http://dx.doi.org/10.1007/s007800050070
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