No abstract

No abstract

The so-called "interval model" for security prices, together with a robust control approach, allows one to construct a consistent theory of option pricing, including discrete time trading and arbitrary transaction costs. In this context, a new representation theorem for the viscosity solution of the relevant Isaacs (differential) quasivariational inequality leads to simple formulas and fast numerical algorithms to compute a hedging portfolio. We argue that in spite of a less satisfactory market model, the overall theory is not much less realistic than the classical Black and Scholes theory, but rather, it only shifts from the portfolio model to the market model the place where the model is violated when sudden large price changes occur on the market.

No abstract

No abstract