Download or read book Arbitrage Free Prices Versus Equilibrium Prices written by Robert A. Jarrow and published by . This book was released on 1981 with total page 30 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Download or read book Market Consistent Prices written by Pablo Koch-Medina and published by Springer Nature. This book was released on 2020-07-16 with total page 448 pages. Available in PDF, EPUB and Kindle. Book excerpt: Arbitrage Theory provides the foundation for the pricing of financial derivatives and has become indispensable in both financial theory and financial practice. This textbook offers a rigorous and comprehensive introduction to the mathematics of arbitrage pricing in a discrete-time, finite-state economy in which a finite number of securities are traded. In a first step, various versions of the Fundamental Theorem of Asset Pricing, i.e., characterizations of when a market does not admit arbitrage opportunities, are proved. The book then focuses on incomplete markets where the main concern is to obtain a precise description of the set of “market-consistent” prices for nontraded financial contracts, i.e. the set of prices at which such contracts could be transacted between rational agents. Both European-type and American-type contracts are considered. A distinguishing feature of this book is its emphasis on market-consistent prices and a systematic description of pricing rules, also at intermediate dates. The benefits of this approach are most evident in the treatment of American options, which is novel in terms of both the presentation and the scope, while also presenting new results. The focus on discrete-time, finite-state models makes it possible to cover all relevant topics while requiring only a moderate mathematical background on the part of the reader. The book will appeal to mathematical finance and financial economics students seeking an elementary but rigorous introduction to the subject; mathematics and physics students looking for an opportunity to get acquainted with a modern applied topic; and mathematicians, physicists and quantitatively inclined economists working or planning to work in the financial industry.
Download or read book Arbitrage Pricing and Equilibrium Pricing written by Elyes Jouini and published by . This book was released on 2015 with total page 47 pages. Available in PDF, EPUB and Kindle. Book excerpt: The problem of fair pricing of contingent claims is well understood in the contex of an arbitrage free, complete financial market, with perfect information: the so-called arbitrage approach permits to construct a unique valuation operator compatible with observed price processes. In the more realistic context of partial information, the equilibrium analysis permits to construct a unique valuation operator which only depends on some particular price processes as well as on the dividends process. In this paper we present these two approaches and we explore their links and the conditions under which they are compatible ; In particular, we derive from the equilibrium conditions some links between the price processes paramaters and those of the dividend processes paramaters.
Download or read book Arbitrage written by Michael G. Allingham and published by Springer. This book was released on 1991-07-01 with total page 175 pages. Available in PDF, EPUB and Kindle. Book excerpt: A text using the concept of arbitrage to value securities, that is to construct the elements of financial economics. Divided into three parts, the book develops the foundations for the study, applies the basic theorem in a single-period setting and extends the discussion to a many-period setting.
Download or read book A Note on Arbitrage Asset Pricing written by Manfred Steiner and published by . This book was released on 1999 with total page 47 pages. Available in PDF, EPUB and Kindle. Book excerpt: Arbitrage pricing plays an important role in asset valuation. The most applications of arbitrage asset pricing theories are based on the law of one price or asymptotic arbitrage free markets. We provide some new results on arbitrage and especially the arbitrage pricing theory by distinguishing between the absence of arbitrage, the law of one price and the absence of riskless arbitrage. Then we find the implications of these conditions for arbitrage asset pricing. Since the three concepts of the absence of arbitrage imply that the linear functionals that give the mean and the cost of a portfolio are continuous, hence there exist unique portfolios that represent these functionals. We detect a positive distance between these portfolios and therefore between the functionals. Thus the law of one price and the absence of a riskless arbitrage opportunity lead to systematic mispricing if both the contingent claims and the assets are mispriced. The beta pricing literature usually makes strong assumptions to obtain exact asset pricing. This belongs to a debate over which factors have the best theoretical or empirical justification. In the light of our results it is more advisable to acknowledge that almost only approximate arbitrage asset pricing can be obtained. The introduction of risky arbitrage opportunities in the sense that there might be an arbitrage opportunity with positive probability but not with probability one requires the knowledge of the risk aversion of investors. Therefore exact asset pricing can only be obtained by equilibrium asset pricing models. Our results generalizes to other arbitrage asset pricing theories like the Black and Scholes option valuation model and even the Modigliani-Miller Theorem.
Download or read book Rational Pricing written by Fouad Sabry and published by One Billion Knowledgeable. This book was released on 2024-02-04 with total page 388 pages. Available in PDF, EPUB and Kindle. Book excerpt: What is Rational Pricing The assumption that asset prices, and consequently asset pricing models, will represent the arbitrage-free price of the asset is known as rational pricing. This assumption is based on the fact that any departure from this price will be "arbitraged away" throughout the process of rational pricing. In addition to being an essential component in the pricing of derivative instruments, this assumption is helpful in determining the value of fixed income securities, notably bonds. How you will benefit (I) Insights, and validations about the following topics: Chapter 1: Rational pricing Chapter 2: Arbitrage Chapter 3: Derivative (finance) Chapter 4: Financial economics Chapter 5: Black-Scholes model Chapter 6: Real options valuation Chapter 7: Forward contract Chapter 8: Binomial options pricing model Chapter 9: Convertible bond Chapter 10: Valuation (finance) Chapter 11: Risk-neutral measure Chapter 12: Swap (finance) Chapter 13: Bond valuation Chapter 14: Arbitrage pricing theory Chapter 15: Fixed income arbitrage Chapter 16: Business valuation Chapter 17: Asset pricing Chapter 18: Lattice model (finance) Chapter 19: Real business-cycle theory Chapter 20: Bootstrapping (finance) Chapter 21: Replicating portfolio (II) Answering the public top questions about rational pricing. (III) Real world examples for the usage of rational pricing in many fields. Who this book is for Professionals, undergraduate and graduate students, enthusiasts, hobbyists, and those who want to go beyond basic knowledge or information for any kind of Rational Pricing.
Download or read book Market Imperfections Equilibrium and Arbitrage written by Elyes Jouini and published by . This book was released on 2007 with total page 55 pages. Available in PDF, EPUB and Kindle. Book excerpt: The theory of asset pricing, which takes its roots in the Arrow-Debreu model, the Black and Scholes formula, has been famalized in a framework by Harrison and Kreps (1979), harrison and Pliska (1979) and Kreps (1981). In these models, securities markets are assumed to be frictionless. The main result is that a price process is arbitrage free (or, equivalently, compatible with some equilibrium) if and only if it is, when appropriately renormalized, a martingale for some equivalent probability measure. The theory of pricing by arbitrage flows from there. Contingent claims can be priced by taking their expected value with respect to an equivalent martingale measure. If this value is unique, the claim is said to be priced by arbitrage. The new probabilities can be interpreted as state prices or as the intertemporal marginal ratyes of substitution of an agent maximizing his expected utility. In this work, we will propose a general model that takes frictions into account.
Download or read book Financial Derivatives Pricing Selected Works Of Robert Jarrow written by Robert A Jarrow and published by World Scientific. This book was released on 2008-10-08 with total page 609 pages. Available in PDF, EPUB and Kindle. Book excerpt: This book is a collection of original papers by Robert Jarrow that contributed to significant advances in financial economics. Divided into three parts, Part I concerns option pricing theory and its foundations. The papers here deal with the famous Black-Scholes-Merton model, characterizations of the American put option, and the first applications of arbitrage pricing theory to market manipulation and liquidity risk.Part II relates to pricing derivatives under stochastic interest rates. Included is the paper introducing the famous Heath-Jarrow-Morton (HJM) model, together with papers on topics like the characterization of the difference between forward and futures prices, the forward price martingale measure, and applications of the HJM model to foreign currencies and commodities.Part III deals with the pricing of financial derivatives considering both stochastic interest rates and the likelihood of default. Papers cover the reduced form credit risk model, in particular the original Jarrow and Turnbull model, the Markov model for credit rating transitions, counterparty risk, and diversifiable default risk.
Download or read book Intertemporal Asset Pricing written by Bernd Meyer and published by Springer Science & Business Media. This book was released on 2012-12-06 with total page 295 pages. Available in PDF, EPUB and Kindle. Book excerpt: In the mid-eighties Mehra and Prescott showed that the risk premium earned by American stocks cannot reasonably be explained by conventional capital market models. Using time additive utility, the observed risk pre mium can only be explained by unrealistically high risk aversion parameters. This phenomenon is well known as the equity premium puzzle. Shortly aft erwards it was also observed that the risk-free rate is too low relative to the observed risk premium. This essay is the first one to analyze these puzzles in the German capital market. It starts with a thorough discussion of the available theoretical mod els and then goes on to perform various empirical studies on the German capital market. After discussing natural properties of the pricing kernel by which future cash flows are translated into securities prices, various multi period equilibrium models are investigated for their implied pricing kernels. The starting point is a representative investor who optimizes his invest ment and consumption policy over time. One important implication of time additive utility is the identity of relative risk aversion and the inverse in tertemporal elasticity of substitution. Since this identity is at odds with reality, the essay goes on to discuss recursive preferences which violate the expected utility principle but allow to separate relative risk aversion and intertemporal elasticity of substitution.
Download or read book Heterogeneous Beliefs Asset Market Equilibrium and the Arbitrage Pricing Model written by Puneet Handa and published by . This book was released on 1986 with total page 52 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Download or read book Equilibrium and Dynamics written by Mukul Majumdar and published by Springer. This book was released on 1992-06-18 with total page 374 pages. Available in PDF, EPUB and Kindle. Book excerpt: Over the last 40 years, Professor David Gale has played a leading role in developing two themes of fundamental importance to economic theory. As a tribute to his creative research, this volume contains contributions from some leading researchers who explore different directions in these areas.
Download or read book Monte Carlo Simulation with Applications to Finance written by Hui Wang and published by CRC Press. This book was released on 2012-05-22 with total page 294 pages. Available in PDF, EPUB and Kindle. Book excerpt: Developed from the author’s course on Monte Carlo simulation at Brown University, Monte Carlo Simulation with Applications to Finance provides a self-contained introduction to Monte Carlo methods in financial engineering. It is suitable for advanced undergraduate and graduate students taking a one-semester course or for practitioners in the financial industry. The author first presents the necessary mathematical tools for simulation, arbitrary free option pricing, and the basic implementation of Monte Carlo schemes. He then describes variance reduction techniques, including control variates, stratification, conditioning, importance sampling, and cross-entropy. The text concludes with stochastic calculus and the simulation of diffusion processes. Only requiring some familiarity with probability and statistics, the book keeps much of the mathematics at an informal level and avoids technical measure-theoretic jargon to provide a practical understanding of the basics. It includes a large number of examples as well as MATLAB® coding exercises that are designed in a progressive manner so that no prior experience with MATLAB is needed.
Download or read book Fixed Income Analysis for the Global Financial Market written by Giorgio S. Questa and published by John Wiley & Sons. This book was released on 1999-07-22 with total page 388 pages. Available in PDF, EPUB and Kindle. Book excerpt: Anwendungsbereite Kenntnisse moderner festverzinslicher Anlageformen erlernen Sie mit diesem Handbuch von Grund auf. Preisgestaltung und Risikoanalysen werden auch dem Leser mit geringen mathematischen Vorkenntnissen schlussig erklart. Instrumente des Geldmarktes, langfristige Anlagen, Optionen, Derivate und viele andere Themen wurden in einer Form aufgearbeitet, die sich besonders zum Selbststudium eignet. (04/99)
Download or read book Institutions Equilibria and Efficiency written by Christian Schultz and published by Springer Science & Business Media. This book was released on 2006-04-22 with total page 380 pages. Available in PDF, EPUB and Kindle. Book excerpt: Competition and efficiency is at the core of economic theory. This volume collects papers of leading scholars, which extend the conventional general equilibrium model in important ways: Efficiency and price regulation are studied when markets are incomplete and existence of equilibria in such settings is proven under very general preference assumptions. The model is extended to include geographical location choice, a commodity space incorporating manufacturing imprecision and preferences for club-membership, schools and firms. Inefficiencies arising from household externalities or group membership are evaluated. Core equivalence is shown for bargaining economies. The theory of risk aversion is extended and the relation between risk taking and wealth is experimentally investigated. Other topics include determinacy in OLG with cash-in-advance constraints, income distribution and democracy in OLG, learning in OLG and in games, optimal pricing of derivative securities, the impact of heterogeneity at the individual level for aggregate consumption, and adaptive contracting in view of uncertainty.
Download or read book Financial Economics written by Fouad Sabry and published by One Billion Knowledgeable. This book was released on 2023-12-17 with total page 360 pages. Available in PDF, EPUB and Kindle. Book excerpt: What is Financial Economics The subfield of economics known as financial economics is distinguished by its "concentration on monetary activities" and the fact that "money of one type or another is likely to appear on both sides of a trade." It is therefore concerned with the interrelationship of financial factors, such as share prices, interest rates, and exchange rates, as opposed to those that pertain to the actual economy. Asset pricing and corporate finance are the two primary areas of concentration that it focuses on. The first is the viewpoint of those who offer capital, sometimes known as investors, and the second is the viewpoint of those who need capital.The theoretical foundation for a significant portion of finance is therefore provided by it. How you will benefit (I) Insights, and validations about the following topics: Chapter 1: Financial economics Chapter 2: Finance Chapter 3: Black-Scholes model Chapter 4: Capital asset pricing model Chapter 5: Real options valuation Chapter 6: Risk-neutral measure Chapter 7: Rational pricing Chapter 8: Arbitrage pricing theory Chapter 9: Beta (finance) Chapter 10: Monte Carlo methods in finance Chapter 11: Monte Carlo methods for option pricing Chapter 12: Business valuation Chapter 13: Asset pricing Chapter 14: Financial modeling Chapter 15: Lattice model (finance) Chapter 16: Georgism Chapter 17: Option (finance) Chapter 18: Heston model Chapter 19: Quantitative analysis (finance) Chapter 20: Mathematical finance Chapter 21: Contingent claim (II) Answering the public top questions about financial economics. (III) Real world examples for the usage of financial economics in many fields. (IV) Rich glossary featuring over 1200 terms to unlock a comprehensive understanding of financial economics. (eBook only). Who will benefit Professionals, undergraduate and graduate students, enthusiasts, hobbyists, and those who want to go beyond basic knowledge or information for any kind of financial economics.
Download or read book Risk Pioneer written by Fouad Sabry and published by One Billion Knowledgeable. This book was released on 2024-04-20 with total page 259 pages. Available in PDF, EPUB and Kindle. Book excerpt: Who is Risk Pioneer William Forsyth Sharpe is an American economist. He is the STANCO 25 Professor of Finance, Emeritus at Stanford University's Graduate School of Business, and the winner of the 1990 Nobel Memorial Prize in Economic Sciences. How you will benefit (I) Insights about the following: Chapter 1: William F. Sharpe Chapter 2: Finance Chapter 3: Financial economics Chapter 4: Capital asset pricing model Chapter 5: Harry Markowitz Chapter 6: Modern portfolio theory Chapter 7: Portfolio (finance) Chapter 8: Armen Alchian Chapter 9: David Dodd Chapter 10: Investment management Chapter 11: Roger G. Ibbotson Chapter 12: Asset pricing Chapter 13: Moses Abramovitz Chapter 14: Post-modern portfolio theory Chapter 15: Jack L. Treynor Chapter 16: Portfolio manager Chapter 17: Eduardo Schwartz Chapter 18: Portfolio optimization Chapter 19: Downside risk Chapter 20: Returns-based style analysis Chapter 21: Bruno Solnik Who this book is for Professionals, undergraduate and graduate students, enthusiasts, hobbyists, and those who want to go beyond basic knowledge or information about Risk Pioneer.
Download or read book An Introduction to Exotic Option Pricing written by Peter Buchen and published by CRC Press. This book was released on 2012-02-03 with total page 298 pages. Available in PDF, EPUB and Kindle. Book excerpt: In an easy-to-understand, nontechnical yet mathematically elegant manner, An Introduction to Exotic Option Pricing shows how to price exotic options, including complex ones, without performing complicated integrations or formally solving partial differential equations (PDEs). The author incorporates much of his own unpublished work, including ideas and techniques new to the general quantitative finance community. The first part of the text presents the necessary financial, mathematical, and statistical background, covering both standard and specialized topics. Using no-arbitrage concepts, the Black–Scholes model, and the fundamental theorem of asset pricing, the author develops such specialized methods as the principle of static replication, the Gaussian shift theorem, and the method of images. A key feature is the application of the Gaussian shift theorem and its multivariate extension to price exotic options without needing a single integration. The second part focuses on applications to exotic option pricing, including dual-expiry, multi-asset rainbow, barrier, lookback, and Asian options. Pushing Black–Scholes option pricing to its limits, the author introduces a powerful formula for pricing a class of multi-asset, multiperiod derivatives. He gives full details of the calculations involved in pricing all of the exotic options. Taking an applied mathematics approach, this book illustrates how to use straightforward techniques to price a wide range of exotic options within the Black–Scholes framework. These methods can even be used as control variates in a Monte Carlo simulation of a stochastic volatility model.
