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Pricing bonds in an incomplete market: Linear and Dynamic Programming approach
Sarkar, Arnab; Hemachandra, N. - Society for Computational Economics - SCE - 2005
We consider a finite horizon discrete time model for bond market where bond prices are functions of the short rate process. We use a variant of the Ito's formula to decompose the bond price process into unique drift and martingale processes. We then apply the Girsanov's Theorem for finding a...
Persistent link: https://www.econbiz.de/10005706320
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Inflationary Equilibrium in a Stochastic Economy with Independent Agents
Geanakoplos, John; Karatzas, Ioannis; Shubik, Martin; … - Cowles Foundation for Research in Economics, Yale University - 2009
constraints generate inflation. We study stochastic economies with fiat money, a central bank, one nondurable commodity, countably … and a fixed price for the commodity. Consequently, we investigate stationary equilibria with inflation, in which aggregate … equation for the rate of inflation continues to hold and the real rate of interest is equal to the common discount rate of the …
Persistent link: https://www.econbiz.de/10004979386
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Inflationary equilibrium in a stochastic economy with independent agents
Geanakoplos, John; Karatzas, Ioannis; Shubik, Martin; … - In: Journal of Mathematical Economics 52 (2014) C, pp. 1-11
We prove the existence of stationary monetary equilibrium with inflation in a “Bewley” model with constant aggregate …. We also find that, in the presence of real micro uncertainty about individual endowments, the rate of inflation is higher … are shown to generate additional inflation. …
Persistent link: https://www.econbiz.de/10011065476
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Dynamic Portfolio Selection of NPD Programs Using Marginal Returns
Loch, Christoph H.; Kavadias, Stylianos - In: Management Science 48 (2002) 10, pp. 1227-1241
Selecting program portfolios within a budget constraint is an important challenge in the management of new product development (NPD). Optimal portfolios are difficult to define because of the combinatorial complexity of project combinations. However, at the aggregate level of the strategic...
Persistent link: https://www.econbiz.de/10009204305
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Multi-period Markowitz's mean–variance portfolio selection with state-dependent exit probability
Wu, Huiling; Zeng, Yan; Yao, Haixiang - In: Economic Modelling 36 (2014) C, pp. 69-78
This paper considers a multi-period mean–variance portfolio selection problem with uncertain time-horizon in a regime-switching market, where the conditional distribution of the time-horizon is assumed to be stochastic and depends on the market states as the returns of risky assets do....
Persistent link: https://www.econbiz.de/10010729812
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Continuous-time mean–variance portfolio selection with only risky assets
Yao, Haixiang; Li, Zhongfei; Chen, Shumin - In: Economic Modelling 36 (2014) C, pp. 244-251
We investigate in this paper a continuous-time mean–variance portfolio selection problem in a general market setting with multiple assets that all can be risky. Using the Lagrange duality method and the dynamic programming approach, we derive explicit closed-form expressions for the efficient...
Persistent link: https://www.econbiz.de/10010729860
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Heterogeneous Beliefs in a Continuous-Time Model
Hara, Chiaki - Institute of Economic Research, Kyoto University - 2010
In an exchange economy under uncertainty populated by consumers having constant and equal relative risk aversion but heterogeneous probabilistic beliefs, we analyze the nature of the representative consumer's probabilistic belief and discount rates. We prove a formula that implies that the...
Persistent link: https://www.econbiz.de/10008488927
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Duality and Derivative Pricing with Lévy Processes
Fajardo, José; Mordecki, Ernesto - IBMEC Business School - Rio de Janeiro - 2005
The aim of this work is to use a duality approach to study the pricing of derivatives depending on two stocks driven by a bidimensional Lévy process. The main idea is to apply Girsanov's Theorem for Lévy processes, in order to reduce the posed problem to the pricing of a one Lévy driven stock...
Persistent link: https://www.econbiz.de/10005551035
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THE VALUATION OF RUSSIAN OPTIONS FOR DOUBLE EXPONENTIAL JUMP DIFFUSION PROCESSES
SUZUKI, ATSUO; SAWAKI, KATSUSHIGE - In: Asia-Pacific Journal of Operational Research (APJOR) 27 (2010) 02, pp. 227-242
In this paper, we derive closed form solution for Russian option with jumps. First, we discuss the pricing of Russian options when the stock pays dividends continuously. Secondly, we derive the value function of Russian options by solving the ordinary differential equation with some conditions...
Persistent link: https://www.econbiz.de/10008464907
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An Empirical Analysis of Equity Market Expectations in the Recent Financial Turmoil Using Implied Moments and Jump Diffusion Processes
Sugihara, Yoshihiko; Oda, Nobuyuki - Institute for Monetary and Economic Studies, Bank of Japan - 2010
This paper investigates market expectations of future equity prices using the probability distribution and the moments implied in equity option prices. We first conduct, without assuming a particular model, a nonparametric analysis of the development of market expectations in four major markets...
Persistent link: https://www.econbiz.de/10008471281