Asset Pricing and Hedging in Complete Markets

This lecture covers asset pricing and hedging in complete markets, where self-financing trading strategies are used to replicate contingent claims. Linear pricing rules are defined, and the difficulty of identifying hedging strategies is discussed. The lecture explores American contingent claims, stopping times, and the Snell envelope of an adapted process. The optimal exercise policy is motivated using backward induction arguments. The lecture concludes with dynamic programming techniques for solving optimization problems in finance.