Download or read book Pricing and Hedging in an Incomplete Market written by Tim Bruun Madsen and published by . This book was released on 2009 with total page 72 pages. Available in PDF, EPUB and Kindle. Book excerpt:

Download or read book Pricing and Hedging in Incomplete Market written by Zhibo Yu and published by . This book was released on 2005 with total page 126 pages. Available in PDF, EPUB and Kindle. Book excerpt:

Download or read book Pricing and Hedging Derivative Securities in Incomplete Markets written by Dimitris Bertsimas and published by . This book was released on 1997 with total page 80 pages. Available in PDF, EPUB and Kindle. Book excerpt:

Download or read book Pricing and Hedging in Incomplete Markets with Model Uncertainty written by Anne Balter and published by . This book was released on 2018 with total page 31 pages. Available in PDF, EPUB and Kindle. Book excerpt: We search for a trading strategy and the associated robust price of unhedgeable assets in incomplete markets under the acknowledgement of model uncertainty. Our set-up is that we postulate an agent who wants to maximise the expected surplus by choosing an optimal investment strategy. Furthermore, we assume that the agent is concerned about model misspecification. This robust optimal control problem under model uncertainty leads to (i) risk-neutral pricing for the traded risky assets, and (ii) adjusting the drift of the nontraded risk drivers in a conservative direction. The direction depends on the agent's long or short position, and the adjustment that ensures a robust strategy leads to what is known as "actuarial" or "prudential" pricing. Our results extend to a multivariate setting. We prove existence and uniqueness of the robust price in an incomplete market via the link between the semilinear partial differential equation and backward stochastic differential equations.

Download or read book Three Essays on Pricing and Hedging in Incomplete Markets written by Dan Chen and published by . This book was released on 2011 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: The thesis focuses on valuation and hedging problems when the market is incomplete. The first essay considers the quadratic hedging strategy. We propose a generalized quadratic hedging strategy which can balance a short-term risk (additional cost) with a long-term risk (hedging errors). The traditional quadratic hedging strategies, i.e. self-financing strategy and risk-minimization strategy, can be seen as special cases of the generalized quadratic hedging strategy. This is applied to the insurance derivatives market. The second essay compares parametric and nonparametric measure-changing techniques. The essay discusses three pricing approaches: pricing via Esscher measure, via calibration and via nonparametric risk-neutral density; and empirically compares the performance of the three approaches in the metal futures markets. The last essay establishes the concept of stochastic volatility of volatility and proposes several estimation methods.

Download or read book Pricing and Hedging Options in Incomplete Markets written by Thierry Chauveau and published by . This book was released on 2004 with total page 31 pages. Available in PDF, EPUB and Kindle. Book excerpt:

Download or read book Pricing and Hedging Derivative Securities in Incomplete Markets an EE arbitrage Approach written by Dimitris Bertsimas and published by . This book was released on 1997 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt:

Download or read book Pricing and Hedging in Incomplete Markets with Coherent Risk written by Alexander S. Cherny and published by . This book was released on 2006 with total page 21 pages. Available in PDF, EPUB and Kindle. Book excerpt: We propose a pricing technique based on coherent risk measures, which enables one to get finer price intervals than in the No Good Deals pricing. The main idea consists in splitting a liability into several parts and selling these parts to different agents. The technique is closely connected with the convolution of coherent risk measures and equilibrium considerations.Furthermore, we propose a way to apply the above technique to the coherent estimation of the Greeks.

Download or read book Hedging and Pricing in Incomplete Markets written by Hirbod Assa and published by . This book was released on 2014 with total page 111 pages. Available in PDF, EPUB and Kindle. Book excerpt: This thesis consists of three essays in financial econometrics. In the first part of the thesis, motivated by different applications of hedging methods in the literature, we propose a general theoretical framework for hedging and pricing. First, we review briefly different strands of literature on hedging which have been developed in various fields such as finance, economics, operations research and mathematics, and then try to come up with a tractable way for hedging and pricing in this paper. By introducing different market principles, we study conditions under which the hedging problem has a solution and pricing is possible. We will conduct an in-depth theoretical analysis of hedging strategies with shortfall risks as well as the spectral risk measures, in particular those associated with Choquet expected utility. We show that asymmetric information results in incorrect risk assessment and pricing. In the second part of the thesis, we will apply our results in the first part to construct an economic risk hedge. We also introduce a general method to estimate the stochastic discount factors associated with different risk measures and different financial models. The third part of the thesis modifies the speculative storage model by embedding staggered price features into the structural model of Deaton and Laroque (1996). In an attempt to replicate the stylized facts of observed commodity price dynamics, we add an additional source of intertemporal linkage to Deaton and Laroque (1996), namely speculation in intermediate-good inventories. The introduction of this type of friction into the model is motivated by its ability to increase price stickiness which gives rise to an increased persistence in the first and higher conditional moments of commodity prices. By incorporating intermediate risk neutral speculators and a final bundler with a staggered pricing rule in the spirit of Calvo (1983) into the storage model, we are able to capture a high degree of serial correlation and conditional heteroskedasticity, which are observed in actual data. The structural parameters of both Deaton and Laroque (1996) and our modified models are estimated using actual prices for 8 agricultural commodities. Simulated data are then employed to assess the effects of our staggered price approach on the time-series properties of commodity prices. Our results lend empirical support to the possibility of staggered prices.

Download or read book On Utility Based Investment Pricing and Hedging in Incomplete Markets written by and published by . This book was released on 2004 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: This thesis deals with rational investors who maximize their expected utility in incomplete markets. In Part I, we consider incompleteness induced by jumps and stochastic volatility. Using martingale methods we determine optimal investment strategies for power utility in a wide class of different models. Moreover, we show how first-order approximations of utility-based prices and hedging strategies can be computed by solving a quadratic hedging problem under a suitable measure. This representation result is then applied to affine models leading to semi-explicit solutions. In Part II, we deal with incompleteness due to proportional transaction costs. In finite discrete time we establish that there always exists a shadow price process, which lies within the bid-ask bounds of the original market with transaction costs and leads to the same maximal expected utility. We then show that this idea can also be used in actual computations. This is done by reconsidering the classical Merton problem with transaction costs and solving it by computing the shadow price and the optimal strategy simultaneously.

Download or read book Pricing and Hedging Derivative Securities in Incomplete Markets written by Dimitris Bertsimas and published by . This book was released on 1997 with total page 0 pages. Available in PDF, EPUB and Kindle. Book excerpt: Given a European derivative security with an arbitrary payoff function and a corresponding set of" underlying securities on which the derivative security is based, we solve the dynamic replication problem: find a" self-financing dynamic portfolio strategy involving only the underlying securities that most closely" approximates the payoff function at maturity. By applying stochastic dynamic programming to the minimization of a" mean-squared-error loss function under Markov state-dynamics, we derive recursive expressions for the optimal-replication strategy that are readily implemented in practice. The approximation error or " " of the optimal-replication strategy is also given recursively and may be used to quantify the "degree" of market incompleteness. " To investigate the practical significance of these -arbitrage strategies examples including path-dependent options and options on assets with stochastic volatility and jumps. "

Download or read book Pricing and Hedging Derivative Securities in Incomplete Markets written by Dimitris Bertsimas and published by . This book was released on 1997 with total page 0 pages. Available in PDF, EPUB and Kindle. Book excerpt: Given a European derivative security with an arbitrary payoff function and a corresponding set of" underlying securities on which the derivative security is based, we solve the dynamic replication problem: find a" self-financing dynamic portfolio strategy involving only the underlying securities that most closely" approximates the payoff function at maturity. By applying stochastic dynamic programming to the minimization of a" mean-squared-error loss function under Markov state-dynamics, we derive recursive expressions for the optimal-replication strategy that are readily implemented in practice. The approximation error or " " of the optimal-replication strategy is also given recursively and may be used to quantify the "degree" of market incompleteness." To investigate the practical significance of these -arbitrage strategies examples including path-dependent options and options on assets with stochastic volatility and jumps."

Download or read book Indifference Pricing written by René Carmona and published by Princeton University Press. This book was released on 2009-01-18 with total page 427 pages. Available in PDF, EPUB and Kindle. Book excerpt: This is the first book about the emerging field of utility indifference pricing for valuing derivatives in incomplete markets. René Carmona brings together a who's who of leading experts in the field to provide the definitive introduction for students, scholars, and researchers. Until recently, financial mathematicians and engineers developed pricing and hedging procedures that assumed complete markets. But markets are generally incomplete, and it may be impossible to hedge against all sources of randomness. Indifference Pricing offers cutting-edge procedures developed under more realistic market assumptions. The book begins by introducing the concept of indifference pricing in the simplest possible models of discrete time and finite state spaces where duality theory can be exploited readily. It moves into a more technical discussion of utility indifference pricing for diffusion models, and then addresses problems of optimal design of derivatives by extending the indifference pricing paradigm beyond the realm of utility functions into the realm of dynamic risk measures. Focus then turns to the applications, including portfolio optimization, the pricing of defaultable securities, and weather and commodity derivatives. The book features original mathematical results and an extensive bibliography and indexes. In addition to the editor, the contributors are Pauline Barrieu, Tomasz R. Bielecki, Nicole El Karoui, Robert J. Elliott, Said Hamadène, Vicky Henderson, David Hobson, Aytac Ilhan, Monique Jeanblanc, Mattias Jonsson, Anis Matoussi, Marek Musiela, Ronnie Sircar, John van der Hoek, and Thaleia Zariphopoulou. The first book on utility indifference pricing Explains the fundamentals of indifference pricing, from simple models to the most technical ones Goes beyond utility functions to analyze optimal risk transfer and the theory of dynamic risk measures Covers non-Markovian and partially observed models and applications to portfolio optimization, defaultable securities, static and quadratic hedging, weather derivatives, and commodities Includes extensive bibliography and indexes Provides essential reading for PhD students, researchers, and professionals

Download or read book Derivative Pricing and Hedging for Incomplete Markets Stochastic Arbitrage and an Adaptive Procedure for Stochastic Volatility written by Stephanos C. Panayides and published by . This book was released on 2005 with total page 144 pages. Available in PDF, EPUB and Kindle. Book excerpt:

Download or read book Option Pricing in Incomplete Markets written by Alfredo Ibañez and published by . This book was released on 2007 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: Consider a non-spanned security C_T in an incomplete market. We study the risk/return trade-offs generated if this security is sold for an arbitrage-free price 'c0' and then hedged. We consider recursive one-period optimal self-financing hedging strategies, a simple but tractable criterion. For continuous trading, diffusion processes, the one-period minimum variance portfolio is optimal. Let C_0(0) be its price. Self-financing implies that the residual risk is equal to the sum of the one-period orthogonal hedging errors, sum Y_t(0) . To compensate the residual risk, a risk premium y_t ?t is associated with every Y_t. Now let C_0(y) be the price of the hedging portfolio, and sum (Y_t(y) + y_t ?t) is the total residual risk. Although not the same, the one-period hedging errors Y_t (0) and Y_t (y) are orthogonal to the trading assets, and are perfectly correlated. This implies that the spanned option payoff does not depend on y. Let c0=C_0(y). A main result follows. Any arbitrage-free price, c0, is just the price of a hedging portfolio (such as in a complete market), C_0(0), plus a premium, c0-C_0(0). That is, C_0(0) is the price of the option's payoff which can be spanned, and c0-C_0(0) is the premium associated with the option's payoff which cannot be spanned (and yields a contingent risk premium of sum y_t ?t at maturity). We study other applications of option-pricing theory as well.

Download or read book Hedging and Pricing with L2 Convex Risk Measures in Incomplete Markets written by Antoine Toussaint and published by . This book was released on 2007 with total page 222 pages. Available in PDF, EPUB and Kindle. Book excerpt: This framework is more suitable for optimal hedging with L 2 valued financial markets. A dual representation is given for this minimum risk when the risk measure is real-valued and we give an example of computation in a stochastic volatility model with the shortfall risk. In the general case when the risk may become infinite, we introduce constrained hedging and prove that the minimum risk is still an L2 convex risk measure and the existence of an optimal hedge.

Download or read book Neutral and Indifference Portfolio Pricing Hedging and Investing written by Srdjan Stojanovic and published by Springer Science & Business Media. This book was released on 2011-08-30 with total page 274 pages. Available in PDF, EPUB and Kindle. Book excerpt: This book is written for quantitative finance professionals, students, educators, and mathematically inclined individual investors. It is about some of the latest developments in pricing, hedging, and investing in incomplete markets. With regard to pricing, two frameworks are fully elaborated: neutral and indifference pricing. With regard to hedging, the most conservative and relaxed hedging formulas are derived. With regard to investing, the neutral pricing methodology is also considered as a tool for connecting market asset prices with optimal positions in such assets. Srdjan D. Stojanovic is Professor in the Department of Mathematical Sciences at University of Cincinnati (USA) and Professor in the Center for Financial Engineering at Suzhou University (China).