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Optional decomposition of supermartingales and hedging contingent claims in incomplete security markets

Kramkov, D. O. - 1994

decomposition to the problem of hedging European and American style contingent claims in a setting of incomplete security markets. …

Persistent link: https://www.econbiz.de/10005841380

Extended Libor Market Models with Affine and Quadratic Volatility

Zühlsdorff, Christian - 2000

The market model of interest rates specifies simple forward or Libor rates as lognormaly distributed, their stochastic dynamics has a linear volatility function. This model is extended to quadratic volatility which is the product of a quadratic polynomial and a level-independent covariance...

Persistent link: https://www.econbiz.de/10005842790

An Examination of the Effects of Parameter Misspecification

Dudenhausen, Antje; Schlögl, Lutz - 2002

It is well-known that Gaussian hedging strategies are robust in the sense that they always lead to a cost process of … hedging instruments from a given set of traded assets, in particular of zero coupon bonds, is studied. Misspecified hedging …

Persistent link: https://www.econbiz.de/10005842793

Pseudo-Arbitrage - A new Approach to Pricing and Hedging in Incomplete Markets

Sommer, Daniel - 1998

We develop a new approach to pricing and hedging contingent claims in incomplete markets framework the no … et al. we can derive unique prices and corresponding optimal hedging strategies without invoking specific assumptions on …

Persistent link: https://www.econbiz.de/10005841326

Market Volatility and Feedback Effects from Dynamic Hedging

Frey, Rüdiger; Stremme, Alexander - 1995

In this paper we analyze in what way the demand generated by dynamic hedging strategies affects the equilibrium prices … hedging. It turns out that market volatility increases and becomes price-dependent. The strength of the effects depend not … discuss in what sense hedging strategies calculated under the assumption of constant volatility are still appropriate, even if …

Persistent link: https://www.econbiz.de/10005841370

Stock Evolution under Stochastic Volatility: A discrete approach

Leisen, Dietmar - 1999

This paper examines the pricing of options by approximating extensions of the Black-Scholes setup in which volatility follows a separate diffusion process. It gereralizes the well-known binomial model, constructing a discrete two-dimensional lattice. We discuss convergence issues extensively and...

Persistent link: https://www.econbiz.de/10005841333

Bounds on European Option Prices under Stochastic Volatility

Sin, Carlos A.; Frey, Rüdiger - 1997

In this paper we consider the range of prices consistent with no arbitrage for European options in a general stochastic volatility model. We give conditions under which infimum respectively the supremum of the possible option prices are equal to the intrinsic value of the option or to the...

Persistent link: https://www.econbiz.de/10005841335

Factor Models and the Shape of the Term Structure

Schlögl, Erik; Sommer, Daniel - 1997

The present paper analyses a broad range of one- and multifactor models of the term structure of interest rates. We assess the influence of the number of factors, mean reversion, and the factor probability distributions on the term structure shapes the models generate, and use spread options as...

Persistent link: https://www.econbiz.de/10005841339

Closed Form Solutions for Term Structure Derivatives with Log-Normal Interest Rates

Miltersen, Kristian R.; Sandmann, Klaus; Sondermann, Dieter - Sonderforschungsbereich Information und die … - 1996

We derive a unified model which gives closed form solutions for caps and floors written on interest rates as well as puts and calls written on zero-coupon bonds. The crucial assumption is that forward rates with a compounding period that matches the contract, which we want to price, is...

Persistent link: https://www.econbiz.de/10005841373

On the Existence of Equivalent Tau-Measures in Finite Discrete Time

Schürger, Klaus - 1994

Suppose that (X(n)) is a finite adapted sequence of d-dimensional random variables defined on some filtered probability space ( Omega, F, ( Fn),P ) . We obtain conditions which are necessary and sufficient for the existence of a probability measure Q equivalent to P ( which we call an equivalent...

Persistent link: https://www.econbiz.de/10005841376

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