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Optional decomposition of supermartingales and hedging contingent claims in incomplete security markets

Kramkov, D.O. - University of Bonn, Germany - 1994

Let M(X) be a family of all equivalent local martingale measures for some locally bounded d-dimensional process X, and V be a positive process. Main result of the paper (Theorem 2.1) states that the process V is a supermartingale whatever Q in M(X), if and only if this process admits the...

Persistent link: https://www.econbiz.de/10004968206

A Systematic Approach to Pricing and Hedging of International Derivatives with Interest-Rate Risk

Frey, Rüdiger; Sommer, Daniel - University of Bonn, Germany - 1995

We deal with the valuration and hedging of non path-dependent European options on one or several underlyings in a model … provide a unified and easily applicable approach to pricing and hedging Black-Scholes type options on stocks, bonds, forwards …. futures and exchange rates. We also cover the pricing and hedging of options to exchange two Black-Scholes type options for …

Persistent link: https://www.econbiz.de/10004968300

Probabilistic aspects of options

Foellmer, Hans - University of Bonn, Germany

Persistent link: https://www.econbiz.de/10005001480

Closed form representations for the minimal hedging portfolios of American type contingent claims

Vishnyakov, A. N.; Kramkov, D.O. - University of Bonn, Germany - 1994

In the framework of the classical Black and Scholes model of security market we present the explicit formulas of the minimal hedging portfolios for a number of reward processes of the ``classical'', lookback and Asian type. These results complement the solutions previously received by Mc~Kean,...

Persistent link: https://www.econbiz.de/10004968196

Lognormality of Rates and Term Structure Models

Goldys, B.; Musiela, M.; Sondermann, D. - University of Bonn, Germany - 1996

A term structure model with lognormal type volatility structure is proposed. The Heath, Jarrow and Morton (HJM) framework, coupled with the theory of stochastic evolution equations in infinite dimensions, is used to show that the resulting rates are well defined (they do not explode) and remain...

Persistent link: https://www.econbiz.de/10004968197

Pseudo--Arbitrage - A new Approach to Pricing and Hedging in Incomplete Markets

Sommer, Daniel - University of Bonn, Germany - 1998

We develop a new approach to pricing and hedging contingent claims in incomplete markets. Mimicking as closely as possible in an incomplete markets framework the no--arbitrage arguments that have been developed in complete markets leads us to defining the concept of pseudo--arbitrage. Building...

Persistent link: https://www.econbiz.de/10004968199

Equity-linked life insurance - a model with stochastic interest rates

Nielsen, J. Aase; Sandmann, Klaus - University of Bonn, Germany - 1995

Assuming constant interest rates Brennan and Schwartz (1976, 1979) obtained the rational insurance premium on an equity-linked insurance contract through the application of the theory of contingent claims pricing. Further considerations with deterministic interest rates have been discussed in...

Persistent link: https://www.econbiz.de/10004968200

On Smile and Skewness

Platen, Eckhard; Schweizer, Martin - University of Bonn, Germany - 1994

This paper proposes a new explanation for the smile and skewness effects in implied volatilities. Starting from a microeconomic equilibrium approach, we develop a diffusion model for stock prices explicitly incorporating the technical demand induced by hedging strategies. This leads to a...

Persistent link: https://www.econbiz.de/10004968203

The Pricing of Derivatives on Assets with Quadratic Volatility

Zuehlsdorff, Christian - University of Bonn, Germany - 1999

The basic model of financial economics is the Samuelson model of geometric Brownian motion because of the celebrated Black-Scholes formula for pricing the call option. The asset volatility is a linear function of the asset value and the model guarantees positive asset prices. We show that the...

Persistent link: https://www.econbiz.de/10004968209

Stock Evolution under Stochastic Volatility: A Discrete Approach

Leisen, Dietmar P.J. - University of Bonn, Germany

This paper examines the pricing of options by approximating extensions of the Black-Scholes setup in which volatility …-style put options. …

Persistent link: https://www.econbiz.de/10004968228

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