Assets Valuation Using a Contingent Claim
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International Journal of Science and Research (IJSR)
Abstract
In this paper we consider the price dynamics of a portfolio consisting of risk-free and risky assets. The paper discusses the pricing process of a contingent claim, the pricing equation and the risk-neutral valuation under the Martingale representation property. A partial differential equation with an unknown price function is formulated. The solution of this PDE gives a unique pricing formula
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Keywords
Continent claim valuation, Option pricing, Martingale representation, Risk-Neutral Valuation, Stochastic Integrals