Pricing and hedging contingent claims in a multi-asset binomial market

Jarek Kędra, Assaf Libman, Victoria Steblovskaya

Research output: Working paper

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We consider an incomplete multi-asset binomial market model. We prove that for a wide class of contingent claims the extremal multi-step martingale measure is a power of the corresponding single-step extremal martingale measure. This allows for closed form formulas for the bounds of a no-arbitrage contingent claim price interval. We construct a feasible algorithm for computing those boundaries as well as for the corresponding hedging strategies. Our results apply, for example, to European basket call and put options and Asian arithmetic average options.
Original languageEnglish
Number of pages35
Publication statusPublished - 24 Jun 2021


  • Mathematical Finance
  • Optimization and Control
  • Probability
  • Pricing of Securities


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