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How does private information get incorporated into option prices? To study this question, I develop a non-linear, noisy rational expectations equilibrium model with asymmetric information and a full menu of call and put options available for trading. The model allows for an arbitrary...
Persistent link: https://www.econbiz.de/10010412683
In turbulent and volatile markets options can be a preferred asset class for protection against adverse market movements. When volatility increases and markets become sparsely traded, it is not always effective to hedge adverse market movements using any option. Options, where the underlying is...
Persistent link: https://www.econbiz.de/10013003942
In this paper we primarily obtain the explicit formulas for the distribution function of the variance gamma process. The formulas are based on values of hypergeometric functions. This result is applied to European option pricing. Basing on the established formulas, we get the prices of binary...
Persistent link: https://www.econbiz.de/10013021213
In this paper we propose a novel flexible framework based on time changed Lévy process for the joint evolution of stock log-returns and their volatility with the aim of analysing which risk factors and which distribution features provide a robust calibration, repricing and hedging performance....
Persistent link: https://www.econbiz.de/10012933831
A new acceptable price approach to stochastic endpoint determination at given horizon accounting for the marginal investor beliefs and behaviour was proposed. Two-sided filtration with FBSDE defined stochastic dynamics was formulated for acceptable asset price under the risk-neutral probability...
Persistent link: https://www.econbiz.de/10013225759
The classical version of the Fundamental Theorem of Asset Pricing requires that zero-sets of the real-world probability measure P are known. We chose a different route and start from a possibly non-dominated set of probability measures P representing uncertainty about the zero-sets of the real...
Persistent link: https://www.econbiz.de/10013032239
We develop a theoretical trading conditioning model subject to price volatility and return information in terms of market psychological behavior, based on analytical transaction volume-price probability wave distributions in which we use transaction volume probability to describe price...
Persistent link: https://www.econbiz.de/10013149537
This paper briefly identifies and corrects an error in Duffie and Singleton (1999). The error to omit a variable casts doubt on the arguments of Duffie and Singleton to constitute Heath-Jarrow-Morton (1992) type term structures on defaultable bonds. The error reveals inconsistency through their...
Persistent link: https://www.econbiz.de/10013141807
We propose a general discrete-time framework for deriving equilibrium prices of financial securities. It allows for heterogeneous agents, unspanned random endowments and convex trading constraints. We give a dual characterization of equilibria and provide general results on their existence and...
Persistent link: https://www.econbiz.de/10013093885
We provide an easy-to-use model that values derivatives for a privately informed agent. We introduce private forward prices that conveniently format private information for inclusion in a standard no-arbitrage framework. This framework yields simple expressions for the privately-informed value...
Persistent link: https://www.econbiz.de/10012852503