Option pricing for large agents
This paper considers arbitrage-free option pricing in the presence of large agents. These large agents have a significant market power, and their trading strategies influence the dynamics of the financial asset prices. First, a simple asset pricing model in the presence of large agents is presented. Then a nonlinear partial differential equation is found for the prices of European options in the model. The unit option price depends on the large agent's asset holdings. Finally, a game model is introduced for the interaction between different market players. In this game, the outstanding number of options, as well as the option price, is found as a Nash equilibrium.
Year of publication: |
2002
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Authors: | Jonsson, Mattias ; Keppo, Jussi |
Published in: |
Applied Mathematical Finance. - Taylor & Francis Journals, ISSN 1350-486X. - Vol. 9.2002, 4, p. 261-272
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Publisher: |
Taylor & Francis Journals |
Saved in:
Online Resource
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