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Sentiment lost : the effect of projecting the empirical pricing kernel onto a smaller filtration set

Sala, Carlo; Barone-Adesi, Giovanni - 2015

Supported by empirical examples, this paper provides a theoretical analysis on the impacts of using a suboptimal information set for the estimation of the empirical pricing kernel and, more in general, for the validity of the fundamental theorems of asset pricing. While inferring the...

Persistent link: https://www.econbiz.de/10011506352

A Damped Diffusion Framework for Financial Modeling and Closed-Form Maximum Likelihood Estimation

Li, Minqiang - 2009

Asset price bubbles can arise unintentionally when one uses continuous-time diffusion processes to model financial quantities. We propose a flexible damped diffusion framework that is able to break many types of bubbles and preserve the martingale pricing approach. Damping can be done on either...

Persistent link: https://www.econbiz.de/10013155898

Martingale Measures and Collateral

Hunt, Julien - 2017

main result of equivalence between absence of arbitrage and existence of a measure such that assets discounted at their own …

Persistent link: https://www.econbiz.de/10012951984

Martingale Representation of Bond Price

LE, Truc - 2018

In practice, rather than to presume a hypothetical condition that needs be validated theoretically, it is sufficient to accept a real condition that exists and can be directly validated for practical purposes. This paper presents a practical approach to formulating the theoretical price of a...

Persistent link: https://www.econbiz.de/10012916868

A Multidimensional Exponential Utility Indifference Pricing Model with Applications to Counterparty Risk

Henderson, Vicky - 2015

This paper considers exponential utility indifference pricing for a multidimensional non-traded assets model subject to intertemporal default risk, and provides a semigroup approximation for the utility indifference price. The key tool is the splitting method, whose convergence is proved based...

Persistent link: https://www.econbiz.de/10013037486

A Damped Diffusion Framework for Financial Modeling and Closed-Form Maximum Likelihood Estimation

Li, Minqiang - 2010

Persistent link: https://www.econbiz.de/10013148117

Polynomial jump-diffusion models

Filipović, Damir; Larsson, Martin - 2017

We develop a comprehensive mathematical framework for polynomial jump-diffusions in a semimartingale context, which nest affine jump-diffusions and have broad applications in finance. We show that the polynomial property is preserved under polynomial transformations and Lévy time change. We...

Persistent link: https://www.econbiz.de/10011874871

Momentum and Reversion in Risk Neutral Martingale Probabilities

Madan, Dilip B. - 2014

A time homogeneous, purely discontinuous, parsimonous Markov martingale model is proposed for the risk neutral dynamics of equity forward prices. Transition probabilities are in the variance gamma class with spot dependent parameters. Markov chain approximations give access to option prices. The...

Persistent link: https://www.econbiz.de/10013064149

An Implicit Martingale Restriction in a Closed-Form Higher Order Moments Option Pricing Formula Based on Multipoint Padé Approximants

Bagnarosa, Guillaume - 2018

The purpose of this paper is to develop a new non-parametric method to price options based on normalized Multipoint Padé Approximants. Following the seminal paper of Padé (1892), we propose to approximate the risk-neutral distribution by a rational function of polynomials that can accommodate...

Persistent link: https://www.econbiz.de/10012919714

Coherent price systems and uncertainty-neutral valuation : conference paper

Beißner, Patrick - 2013 - This version: 28 February, 2013

We consider fundamental questions of arbitrage pricing arising when the uncertainty model incorporates volatility … uncertainty. With a standard probabilistic model, essential equivalence between the absence of arbitrage and the existence of an … martingale measure sets, in a dynamic trading framework under absence of prior depending arbitrage. We prove the existence of …

Persistent link: https://www.econbiz.de/10010338399

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