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We consider an option c which is contingent on an underlying (tilde S) that is not a traded asset. This situation typically arises in the context of real options. We investigate the situation when there is a "surrogate" traded asset S whose price process is highly correlated with that of (tilde...
Persistent link: https://www.econbiz.de/10005841724
The paper studies the problem of maximizing the expected utility of terminal wealth in the framework of a general incomplete semimartingale model of a financial market. We show that the necessary and sufficient condition on a utility function for the validity of several key assertions of the...
Persistent link: https://www.econbiz.de/10005841725
We give a review of classical and recent results on maximization of expected utility for an investor who has the possibility of trading in a financial market. Emphasis will be given to the duality theory related to this convex optimization problem.(...)
Persistent link: https://www.econbiz.de/10005844798
We prove a version of the Fundamental Theorem of Asset Pricing, which applies to Kabanov's approach to foreign exchange markets under transaction costs. The financial market is modelled by a d x d matrix-valued stochastic process Sigma_t_t=0^T specifying the mutual bid and ask prices between d...
Persistent link: https://www.econbiz.de/10005844799
In a market with one safe and one risky asset, an investor with a long horizon, constantinvestment opportunities, and constant relative risk aversion trades with small proportionaltransaction costs. We derive explicit formulas for the optimal investment policy, its impliedwelfare, liquidity...
Persistent link: https://www.econbiz.de/10009418987
We examine the connection between discrete-time models of financial markets and the celebrated Black--Scholes--Merton (BSM) continuous-time model in which ''markets are complete." Suppose that (a) the probability law of a sequence of discrete-time models converges to the law of the BSM model and...
Persistent link: https://www.econbiz.de/10013189063
Abstract Kusuoka (2001) has obtained explicit representation theorems for comonotone risk measures and, more generally, for law invariant risk measures. These theorems pertain, like most of the previous literature, to the case of scalar-valued risks. Jouini, Meddeb, and Touzi (2004) and Burgert...
Persistent link: https://www.econbiz.de/10014621404
Persistent link: https://www.econbiz.de/10014621406
Abstract For any utility function with asymptotic elasticity equal to one, we construct a market model in countable discrete time, such that the utility maximization problem with proportional transaction costs admits no solution. This proves that the necessity of the reasonable asymptotic...
Persistent link: https://www.econbiz.de/10014621434
Persistent link: https://www.econbiz.de/10012636234