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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

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

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

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

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

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

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

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

On the Numerical Evaluation of Option Prices in Jump Diffusion Processes

Carr, Peter; Mayo, Anita - In: The European Journal of Finance 13 (2007) 4, pp. 353-372

The fair price of a financial option on an asset that follows a Poisson jump diffusion process satisfies a partial integro-differential equation. When numerical methods are used to solve such equations the integrals are usually evaluated using either quadrature methods or fast Fourier methods....

Persistent link: https://www.econbiz.de/10005472004

A bootstrap test for jumps in financial economics

Hwang, Eunju; Shin, Dong Wan - In: Economics Letters 125 (2014) 1, pp. 74-78

An i.i.d. bootstrap is applied for the ratio test of Barndorff-Nielsen and Shephard (2006) for jumps in jump diffusion processes. Asymptotic validity is established for the bootstrap test both under the null of no jump and under the alternative of jumps. Finite sample simulation shows that the...

Persistent link: https://www.econbiz.de/10011041571