Download or read book No Arbitrage Option Pricing written by Menachem Brenner and published by . This book was released on 2008 with total page 42 pages. Available in PDF, EPUB and Kindle. Book excerpt: The no-arbitrage approach to option pricing implies that risk-neutral prices follow a martingale. The validity of this property has been tested and rejected by Longstaff (1995). Since he tested the general framework, his results have far reaching and disturbing implications for contingent claims pricing. This paper proposes a new method to test the martingale property. This method is based on the Laguerre polynomial series. The tests use options and futures on the Samp;P 500 index. The new methodology and data show that the martingale property cannot be rejected. This result implies that the general approach is still valid and the existence of frictions only adds noise. Testing more specific pricing models is relevant again.
Download or read book Risk Neutral Valuation written by Nicholas H. Bingham and published by Springer Science & Business Media. This book was released on 2013-06-29 with total page 306 pages. Available in PDF, EPUB and Kindle. Book excerpt: With a simple approach accessible to a wide audience, this book aims for the heart of mathematical finance: the fundamental formula of arbitrage pricing theory. This method of pricing discounts everything and takes expected values under the equivalent martingale measure. The authors approach is simple and excludes unnecessary proofs of measure-theoretic probability, instead, it favors techniques and examples of proven interest to financial practitioners.
Download or read book No arbitrage Option Pricing written by Edward I. Altman and published by . This book was released on 1991 with total page 56 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Download or read book Introduction to Option Pricing Theory written by Gopinath Kallianpur and published by Springer Science & Business Media. This book was released on 2012-12-06 with total page 266 pages. Available in PDF, EPUB and Kindle. Book excerpt: Since the appearance of seminal works by R. Merton, and F. Black and M. Scholes, stochastic processes have assumed an increasingly important role in the development of the mathematical theory of finance. This work examines, in some detail, that part of stochastic finance pertaining to option pricing theory. Thus the exposition is confined to areas of stochastic finance that are relevant to the theory, omitting such topics as futures and term-structure. This self-contained work begins with five introductory chapters on stochastic analysis, making it accessible to readers with little or no prior knowledge of stochastic processes or stochastic analysis. These chapters cover the essentials of Ito's theory of stochastic integration, integration with respect to semimartingales, Girsanov's Theorem, and a brief introduction to stochastic differential equations. Subsequent chapters treat more specialized topics, including option pricing in discrete time, continuous time trading, arbitrage, complete markets, European options (Black and Scholes Theory), American options, Russian options, discrete approximations, and asset pricing with stochastic volatility. In several chapters, new results are presented. A unique feature of the book is its emphasis on arbitrage, in particular, the relationship between arbitrage and equivalent martingale measures (EMM), and the derivation of necessary and sufficient conditions for no arbitrage (NA). {\it Introduction to Option Pricing Theory} is intended for students and researchers in statistics, applied mathematics, business, or economics, who have a background in measure theory and have completed probability theory at the intermediate level. The work lends itself to self-study, as well as to a one-semester course at the graduate level.
Download or read book Neoclassical Finance written by Stephen A. Ross and published by Princeton University Press. This book was released on 2009-04-11 with total page 120 pages. Available in PDF, EPUB and Kindle. Book excerpt: Neoclassical Finance provides a concise and powerful account of the underlying principles of modern finance, drawing on a generation of theoretical and empirical advances in the field. Stephen Ross developed the no arbitrage principle, tying asset pricing to the simple proposition that there are no free lunches in financial markets, and jointly with John Cox he developed the related concept of risk-neutral pricing. In this book Ross makes a strong case that these concepts are the fundamental pillars of modern finance and, in particular, of market efficiency. In an efficient market prices reflect the information possessed by the market and, as a consequence, trading schemes using commonly available information to beat the market are doomed to fail. By stark contrast, the currently popular stance offered by behavioral finance, fueled by a number of apparent anomalies in the financial markets, regards market prices as subject to the psychological whims of investors. But without any appeal to psychology, Ross shows that neoclassical theory provides a simple and rich explanation that resolves many of the anomalies on which behavioral finance has been fixated. Based on the inaugural Princeton Lectures in Finance, sponsored by the Bendheim Center for Finance of Princeton University, this elegant book represents a major contribution to the ongoing debate on market efficiency, and serves as a useful primer on the fundamentals of finance for both scholars and practitioners.
Download or read book Nonparametric Option Pricing with No Arbitrage Constraints written by Melanie Birke and published by . This book was released on 2010 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: We propose a completely kernel based method of estimating the call price function or the state price density of options. The new estimator of the call price function fulfills the constraints like monotonicity and convexity given in Breeden and Litzenberger (1978) without necessarily estimating the state price density for an underlying asset price from its option prices. It can be shown that the call price estimator is pointwise consistent and asymptotically normal. The estimator of the state price density is also consistent. In a simulation study we compare the new estimators to the estimators given in Aiuml;t-Sahalia and Duarte (2003).
Download or read book Absence of Arbitrage Valuation written by P. Glabadanidis and published by Springer. This book was released on 2014-07-10 with total page 214 pages. Available in PDF, EPUB and Kindle. Book excerpt: Absence of Arbitrage Valuation presents a unified asset pricing strategy through absence of arbitrage and applies this framework to such disparate fields as fixed income security pricing, foreign exchange spots, and forward rates.
Download or read book Nonparametric Option Pricing with No arbitrage Constraints written by Melanie Birke and published by . This book was released on 2007 with total page 0 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Download or read book A Comment on No Arbitrage Pricing written by Ilya I. Gikhman and published by . This book was released on 2013 with total page 5 pages. Available in PDF, EPUB and Kindle. Book excerpt: In this short notice we present critical comments on no-arbitrage principle. We show that no-arbitrage pricing is complete in a pricing theory which ignores market risk and is dealing with the deterministic implied price of instruments. There is a unique price of a derivative in deterministic setting. The no-arbitrage pricing approach picks risk free bond which used as upfront funding instrument for financing deals. In such approach the underlying of the derivatives in deterministic setting becomes risk free bond. In stochastic setting no-arbitrage pricing replace real underlying on a virtual underlying that has risk free expected return and the original volatility. From our point of view this interpretation of the price of a derivative is incorrect. The derivatives pricing contains two steps. On the first step we define the 'market price.' This is the price for each admissible market scenario. On the second step we define a spot derivatives price. In some cases spot price can be implied price. In more complex situations for example such as options pricing construction of the spot price does not so simple. Given market and spot derivative prices we arrive at the market risk. The market risk by definition is the probability of scenarios that counterparty pays or loses more than it is implied by the spot price. Market and spot prices along with correspondent market risk is what we call derivatives price. We illustrate this approach by considering a forward contract pricing.
Download or read book Option Pricing in Incomplete Markets written by Yoshio Miyahara and published by World Scientific. This book was released on 2012 with total page 200 pages. Available in PDF, EPUB and Kindle. Book excerpt: This volume offers the reader practical methods to compute the option prices in the incomplete asset markets. The [GLP & MEMM] pricing models are clearly introduced, and the properties of these models are discussed in great detail. It is shown that the geometric L(r)vy process (GLP) is a typical example of the incomplete market, and that the MEMM (minimal entropy martingale measure) is an extremely powerful pricing measure. This volume also presents the calibration procedure of the [GLP \& MEMM] model that has been widely used in the application of practical problem
Download or read book Strategic Option Pricing written by Volker Bieta and published by . This book was released on 2020 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: In this paper an extension of the well-known binomial approach to option pricing is presented. The classical question is: What is the price of an option on the risky asset? The traditional answer is obtained with the help of a replicating portfolio by ruling out arbitrage. Instead a two-person game from the Nash equilibrium of which the option price can be derived is formulated. Consequently both the underlying asset's price at expiration and the price of the option on this asset are endogenously determined. The option price derived this way turns out, however, to be identical to the classical no-arbitrage option price of the binomial model if the expiration-date prices of the underlying asset and the corresponding risk-neutral probability are properly adjusted according to the Nash equilibrium data of the game.
Download or read book Nonparametric Option Pricing with No arbitrage Constraints written by Melanie Birke and published by . This book was released on 2007 with total page 21 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Download or read book A No arbitrage Variation of the Black Scholes Model for Option Pricing with Bounded Stochastic Volatility written by Chen Guo and published by . This book was released on 1995 with total page 12 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Download or read book General Equilibrium Option Pricing Method Theoretical and Empirical Study written by Jian Chen and published by Springer. This book was released on 2018-04-10 with total page 163 pages. Available in PDF, EPUB and Kindle. Book excerpt: This book mainly addresses the general equilibrium asset pricing method in two aspects: option pricing and variance risk premium. First, volatility smile and smirk is the famous puzzle in option pricing. Different from no arbitrage method, this book applies the general equilibrium approach in explaining the puzzle. In the presence of jump, investors impose more weights on the jump risk than the volatility risk, and as a result, investors require more jump risk premium which generates a pronounced volatility smirk. Second, based on the general equilibrium framework, this book proposes variance risk premium and empirically tests its predictive power for international stock market returns.
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.
Download or read book Applied Conic Finance written by Dilip Madan and published by Cambridge University Press. This book was released on 2016-10-13 with total page 205 pages. Available in PDF, EPUB and Kindle. Book excerpt: This is a comprehensive introduction to the brand new theory of conic finance, also referred to as the two-price theory, which determines bid and ask prices in a consistent and fundamentally motivated manner. Whilst theories of one price classically eliminate all risk, the concept of acceptable risks is critical to the foundations of the two-price theory which sees risk elimination as typically unattainable in a modern financial economy. Practical examples and case studies provide the reader with a comprehensive introduction to the fundamentals of the theory, a variety of advanced quantitative models, and numerous real-world applications, including portfolio theory, option positioning, hedging, and trading contexts. This book offers a quantitative and practical approach for readers familiar with the basics of mathematical finance to allow them to boldly go where no quant has gone before.
Download or read book A Markup Approach to Option Pricing written by Dao Xiong Teng and published by . This book was released on 2010 with total page 49 pages. Available in PDF, EPUB and Kindle. Book excerpt: At the heart of the classical Black-Scholes option pricing model lies the no arbitrage pricing principal with the assumption of a complete market which renders options as redundant assets. It is widely accepted that the market prices of options are generally inconsistent with the pricing model. In the existing literature, most papers have attributed the inconsistencies to the unrealistic assumptions of the classical Black-Scholes model. This paper proposes that even if option prices do follow the Black-Scholes model perfectly, we should not expect the market prices to coincide with prices calculated from the model. We propose two simple alternative approaches to the model on market prices of options, keeping most of the major assumptions under the classical model. We also examine their efficacies in estimating future volatilities and their efficacies in providing a perfect hedge to a long position in various options. Empirical results show some evidence that supports the alternative approaches. Results also show that for certain classifications of options, the alternative models provide a better delta-neutral portfolio.
