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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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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
that the short-term interest rate follows a threshold process with the intercept switching endogenously. The yield … imply an affine yield function. The intervals for which convexity or concavity prevails increase with time to maturity. …
Persistent link: https://www.econbiz.de/10010295794
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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
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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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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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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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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-Scholes-Merton framework large portfolios of options can be hedged without risk in discrete time. The nature of the hedge portfolio in the limit of large portfolio size is substantially different...
Persistent link: https://www.econbiz.de/10010324983
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How arbitrage-free is the Nelson-Siegel Model?
Coroneo, Laura; Nyholm, Ken; Vidova-Koleva, Rositsa - 2008
We test whether the Nelson and Siegel (1987) yield curve model is arbitrage-free in a statistical sense. Theoretically …-coupon yield curve data from the US market, we find that the no-arbitrage parameters are not statistically different from those … obtained from the NS model, at a 95 percent confidence level. We therefore conclude that the Nelson and Siegel yield curve …
Persistent link: https://www.econbiz.de/10011604920