In this book, the authors investigate structural aspects of no arbitrage pricing of contingent claims and applications of the general pricing theory in the context of incomplete markets. A quasi-closed form pricing equation in terms of artificial probabilities is derived for arbitrary payoff structures. Moreover, a comparison between continuous and discrete models is presented, highlighting the major similarities and key differences. As applications, two sources of market incompleteness are considered, namely stochastic volatility and stochastic liquidity. Firstly, the general theory discussed before is applied to the pricing of power options in a stochastic volatility model. Secondly, the issue of liquidity risk is considered by focusing on the aspect of how asset price dynamics are affected by the trading strategy of a large investor.
In this book, the authors investigate structural aspects of no arbitrage pricing of contingent claims and applications of the general pricing theory in the context of incomplete markets. A quasi-closed form pricing equation in terms of artificial probabilities is derived for arbitrary payoff structures. Moreover, a comparison between continuous and discrete models is presented, highlighting the major similarities and key differences. As applications, two sources of market incompleteness are considered, namely stochastic volatility and stochastic liquidity. Firstly, the general theory discussed before is applied to the pricing of power options in a stochastic volatility model. Secondly, the issue of liquidity risk is considered by focusing on the aspect of how asset price dynamics are affected by the trading strategy of a large investor.
This book highlights essential concepts, models, and processes that help those responsible for making pricing decisions - whether professionally or privately - to effectively engage in product...
This text incorporates new information and devotes more time and space to the issues of agricultural industrialization and market structure likely to be faced by applied economists. Responds to a...
This book offers a unified treatment of selected topics in the theory of financial markets. Starting with discrete time models, Dothan introduces discrete time stochastic calculus and discrete...
This is a reproduction of a book published before 1923. This book may have occasional imperfections such as missing or blurred pages, poor pictures, errant marks,...
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