Option pricing in incomplete markets based on partial information

Abstract

In this paper we describe a new approach for the valuation problem in incomplete markets with m ≥ 1 stocks which can be used when the available information about the uncertainty model is only a partial conditional probability assessment p. We select a risk neutral probability minimizing a discrepancy measure between p and the convex set of all possible risk neutral probabilities. © 2010 Springer-Verlag Berlin Heidelberg.