ABSTRACT
Abstract We consider an incomplete financial market model, where the dynamics of asset prices is determined by an i?d-valued continuous semimartingale. Using the dynamic programming approach we give a description of the p-optimal martingale measure in terms of the value process for a suitable problem of an optimal equivalent change of measure and show that this value process uniquely solves the corresponding semimartingale backward equation. This result is applied to approximate the lower price and the corresponding hedging strategy of a contingent claim. Key Words Semimartingale backward equation, contingent claim pricing, p-optimal martingale measure, incomplete markets, lower and upper prices.
