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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
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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
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Convergence of Arbitrage-free Discrete Time Markovian Market Models
Leitner, Johannes - 2000
We consider two sequences of Markov chains induc- ing equivalent measures on the discrete path space. We estab- lish conditions under which these two measures converge weakly to measures induced on the Wiener space by weak solutions of two SDEs, which are unique in the sense of probability law....
Persistent link: https://www.econbiz.de/10010324089
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A note on the pricing of real estate index linked swaps
Björk, Tomas; Clapham, Eric - 2002
In this paper we discuss the pricing of commercial real estate index linked swaps (CREILS). This particular pricing problem has been studied by Buttimer et al. (1997) in a previous paper. We show that their results are only approximately correct and that the true theoretical price of the swap is...
Persistent link: https://www.econbiz.de/10010281429
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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
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High order compact finite difference schemes for a nonlinear Black-Scholes equation
Düring, Bertram; Fournié, Michel; Jüngel, Ansgar - 2001
A nonlinear Black-Scholes equation which models transaction costs arising in the hedging of portfolios is discretized …
Persistent link: https://www.econbiz.de/10010324085
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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
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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
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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
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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