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Equilibrium and arbitrage in incomplete asset markets with fixed prices

Herings, P. J. J.; Polemarchakis, H. - 2001

At arbitrary prices of commodities and assets, fix-price equilibria exist under weak assumptions: endowments need not satisfy an interiority condition, utility functions need only satisfy a very weak monotonicity requirement, and the asset return matrix allows for redundant assets. Prices of...

Persistent link: https://www.econbiz.de/10010318995

Black Scholes for Portfolios of Options in Discrete Time: the Price is Right, the Hedge is wrong

Peeters, Bas; Dert, Cees L.; Lucas, André - 2003

Taking a portfolio perspective on option pricing and hedging, we show that within the standard Black …) hedging the total risk of each option separately, the correct hedge portfolio in discrete time eliminates linear (delta) as … indefinitely. This ties the literature on option pricing and hedging closer together with the APT literature in its focus on …

Persistent link: https://www.econbiz.de/10010324983

Optimality and diversifiability of mean variance and arbitrage pricing portfolios

Pesaran, Mohammad Hashem; Zaffaroni, Paolo - 2009

This paper investigates the limit properties of mean-variance (mv) and arbitrage pricing (ap) trading strategies using a general dynamic factor model, as the number of assets diverge to infinity. It extends the results obtained in the literature for the exact pricing case to two other cases of...

Persistent link: https://www.econbiz.de/10010276233

Towards a general theory of good deal bounds

Björk, Tomas; Slinko, Irina - 2005

Merton jump-diffusion model. As a by product of the general theory we also extend the Hansen-Jagannathan bounds for the …

Persistent link: https://www.econbiz.de/10010281264

Exact arbitrage, well-diversified portfolios and asset pricing in large markets

Khan, M. Ali; Sun, Yeneng - 2002

For market with an atomless continuum of assets, we formulate the intuitive idea of a well-diversified portfolio, and present a notion of exact arbitrage, strictly weaker than the more conventional notion of asymptotic arbitrage, and necessary and sufficient for the validity of an APT pricing...

Persistent link: https://www.econbiz.de/10010293487

Exact arbitrage and portfolio analysis in large asset markets

Khan, M. Ali; Sun, Yeneng - 2002

an exact arbitrage pricing theory (EAPT), we go beyond the characterization of the existence of important portfolios … pricing theory (APT). We also characterize conditions under which a mean-variance efficient portfolio is a benchmark portfolio …

Persistent link: https://www.econbiz.de/10010293500

Bond pricing when the short term interest rate follows a threshold process

Lemke, Wolfgang; Archontakis, Theofanis - 2006

Using a stochastic discount factor approach, we derive the exact solution for arbitrage-free bond yields for the case that the short-term interest rate follows a threshold process with the intercept switching endogenously. The yield functions, mapping the one-month rate into n-period yields,...

Persistent link: https://www.econbiz.de/10010295794

Non-Negativity of Nominal and Real Riskless Rates, Arbitrage Theory, and the Null-Alternative Cash

Wilhelm, Jochen; Nietert, Bernhard - 2004

Pragmatic-world nominal riskless rates are non-negative. However, conventional arbitrage theory has yet to develop a …

Persistent link: https://www.econbiz.de/10010296997

A note on conditional arbitrage-free maximum entropy densities for simulative option pricing

Herrmann, Klaus - 2009

In this note we present a simple method to include the no-arbitrage condition into the derivation of conditional densities using the principle of maximum entropy. For the case of identically and independently distributed returns, we easily derive that the whole process estimated that way is...

Persistent link: https://www.econbiz.de/10010299804

Risk in dynamic arbitrage: Price effects of convergence trading

Kondor, Péter - 2006

This paper studies the adverse price effects of convergence trading. I assume two assets with identical cash flows traded in segmented markets. Initially, there is gap between the prices of the assets, because local traders’ face asymmetric temporary shocks. In the absence of arbitrageurs, the...

Persistent link: https://www.econbiz.de/10010322491

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