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We study strict local martingales via h-transforms, a method which first appeared in work by Delbaen and Schachermayer. We show that strict local martingales arise whenever there is a consistent family of change of measures where the two measures are not equivalent to one another. Several old...
Persistent link: https://www.econbiz.de/10008874847
Consider an agent who enters a financial market on day t = 0 with an initial capital amount x. He invests this amount on stocks and the money market, and by day t = T, has generated a wealth W . He is given a convex class of probability measures (called scenarios) and a real-valued function (or...
Persistent link: https://www.econbiz.de/10005084058
We consider a trader who wants to direct his portfolio towards a set of acceptable wealths given by a convex risk measure. We propose a black-box algorithm, whose inputs are the joint law of stock prices and the convex risk measure, and whose outputs are the numerical values of initial capital...
Persistent link: https://www.econbiz.de/10005084306
We introduce a framework to analyze the relative performance of a portfolio with respect to a benchmark market index. We show that this relative performance has three components: a term that can be interpreted as energy coming from the market fluctuations, a relative entropy term that measures...
Persistent link: https://www.econbiz.de/10010688310
We study systems of Brownian particles on the real line, which interact by splitting the local times of collisions among themselves in an asymmetric manner. We prove the strong existence and uniqueness of such processes and identify them with the collections of ordered processes in a Brownian...
Persistent link: https://www.econbiz.de/10010599997
Consider an equity market with $n$ stocks. The vector of proportions of the total market capitalizations that belongs to each stock is called the market weight. The market weight defines a buy-and-hold portfolio called the market portfolio whose value represents the performance of the entire...
Persistent link: https://www.econbiz.de/10010960630
Recent academic work has developed a method to determine, in real time, if a given stock is exhibiting a price bubble. Currently there is speculation in the financial press concerning the existence of a price bubble in the aftermath of the recent IPO of LinkedIn. We analyze stock price tick data...
Persistent link: https://www.econbiz.de/10009643742
A strict local martingale is a local martingale which is not a martingale. There are few explicit examples of "naturally occurring" strict local martingales with jumps available in the literature. The purpose of this paper is to provide such examples, and to illustrate how they might arise via...
Persistent link: https://www.econbiz.de/10010754250
This paper provides an alternative approach to Duffie and Lando [Econometrica 69 (2001) 633-664] for obtaining a reduced form credit risk model from a structural model. Duffie and Lando obtain a reduced form model by constructing an economy where the market sees the manager's information set...
Persistent link: https://www.econbiz.de/10005099113
Persistent link: https://www.econbiz.de/10003965687