Assets Valuation Using a Contingent Claim

Were J, Omolo Ongati, Nyakinda J

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 dierential equation with an unknown price function is formulated. The solution of this PDE gives a unique pricing formula.

Keywords: Continent claim valuation, Option pricing, Martingale representation, Risk-Neutral Valuation and Stochastic Integrals