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Chapter 11 Intertemporal asset pricing theory
Duffie, Darrell - 2003
This is a survey of the basic theoretical foundations of intertemporal asset pricing theory. The broader theory is first reviewed in a simple discrete-time setting, emphasizing the key role of state prices. The existence of state prices is equivalent to the absence of arbitrage. State prices,...
Persistent link: https://www.econbiz.de/10014023860
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Printing Away the Mortgages : Fiscal Inflation and the Post-Covid Boom
Diamond, William F.; Landvoigt, Tim; Sánchez, Germán … - National Bureau of Economic Research - 2024
We analyze the impact of fiscal and monetary stimulus in an economy with mortgage debt, where inflation redistributes … inflation, increasing consumption demand and house prices. The power of fiscal stimulus grows when borrowers are more indebted …. We then show quantitatively that transfers followed by easy monetary policy cause a surge in inflation which helps …
Persistent link: https://www.econbiz.de/10014576602
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Pricing synthetic CDOs using a three regime Random-Factor-Loading Model
Messow, Philip - 2012
Synthetic Collateralized Debt Obligations (CDOs) were among the driving forces of the rapid growth of the market for credit derivatives in recent years. Possibly the most popular model beside the Gaussian copula for pricing CDO tranches is the Random-Factor-Loading-Model of Andersen and Sidenius...
Persistent link: https://www.econbiz.de/10009579285
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An analytic approximation of the implied risk-neutral density of American multi-asset options
Arismendi Zambrano, Juan Carlos; Prokopczuk, Marcel - 2014
The price of a European option can be computed as the expected value of the payoff function under the risk-neutral measure. For American options and path-dependent options in general, this principle cannot be applied. In this paper, we derive a model-free analytical formula for the implied...
Persistent link: https://www.econbiz.de/10010532229
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Martingale optimal transport and robust hedging in continuous time
Dolinsky, Yan; Soner, Halil Mete - 2013
The duality between the robust (or equivalently, model independent) hedging of path dependent European options and a martingale optimal transport problem is proved. The financial market is modeled through a risky asset whose price is only assumed to be a continuous function of time. The hedging...
Persistent link: https://www.econbiz.de/10009750641
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Smooth and bid-offer compliant volatility surfaces under general dividend streams
Bachem, Olivier; Drimus, Gabriel; Farkas, Walter - 2013 - This version: July, 2013
Given bid-offer quotes for a set of listed vanilla options, a fundamental need of option market makers is to interpolate and extrapolate the available quotes to a full arbitrage-free surface. We propose a methodology which directly controls the trade-off between smoothness and bid-offer...
Persistent link: https://www.econbiz.de/10010258577
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Portfolio selection with options and transaction costs
Malamud, Semyon - 2014
I introduce dynamic option trading and non-linear views into the classical portfolio selection problem. The optimal dynamic option portfolio is characterized explicitly in terms of its expected sensitivities (Greeks) and the role of the mean-variance effi cient portfolio is played by the "Greek...
Persistent link: https://www.econbiz.de/10010337963
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Inferring volatility dynamics and risk premia from the S&P 500 and VIX markets
Bardgett, Chris; Gourier, Elise; Leippold, Markus - 2013
This paper shows that the VIX market contains information on the variance of the S&P 500 returns, which is not already spanned by the S&P 500 market. We estimate a flexible affine model based on a joint time series of underlying indexes and option prices on both markets. We find that including...
Persistent link: https://www.econbiz.de/10010256394
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Sentiment lost : the effect of projecting the empirical pricing kernel onto a smaller filtration set
Sala, Carlo; Barone-Adesi, Giovanni - 2015
Supported by empirical examples, this paper provides a theoretical analysis on the impacts of using a suboptimal information set for the estimation of the empirical pricing kernel and, more in general, for the validity of the fundamental theorems of asset pricing. While inferring the...
Persistent link: https://www.econbiz.de/10011506352
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A general closed form option pricing formula
Necula, Ciprian; Drimus, Gabriel; Farkas, Walter - 2016 - This version: 10 March 2016
A new method to retrieve the risk-neutral probability measure from observed option prices is developed and a closed form pricing formula for European options is obtained by employing a modified Gram-Charlier series expansion, known as the Gauss-Hermite expansion. This expansion converges for...
Persistent link: https://www.econbiz.de/10011506359