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Author: Zhi Li
Publisher:
ISBN:
Category :
Languages : en
Pages :
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Author: Zhi Li
Publisher:
ISBN:
Category :
Languages : en
Pages :
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Author: Dong Chul Won
Publisher:
ISBN:
Category :
Languages : en
Pages : 57
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Book Description
Market frictions create portfolios of complicated nature, constrained zero-income portfolios. They generate no income in the future contingencies but matter to risk sharing whether they are mispriced or not. The no arbitrage conditions of the literature may not be qualified for equilibrium conditions in the presence of constrained zero-income portfolios. Thus 'pricing by arbitrage' is far from completely characterizing asset pricing relations. The purpose of this paper is to provide a unified treatment of both asset pricing and equilibrium when asset markets are subject to portfolio constraints. In particular, 'projective arbitrage' is proposed to examine both asset pricing and the existence of equilibrium under portfolio constraints. To formulate the effect of constrained zero-income portfolios on asset pricing and equilibrium, we introduce the local and global laws of one price as an extension of the law of one price to the case with portfolio constraints. The global law of one price is identified as 'pricing by projective arbitrage.' Moreover, the global law of one price provides an important criterion for judging the capability of various notions of arbitrage to characterize equilibrium asset prices under portfolio constraints. The traditional approach to general equilibrium with incomplete markets breaks down in the face of market frictions simply because the law of one price fails.
Author: Erhan Bayraktar
Publisher:
ISBN:
Category :
Languages : en
Pages : 20
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We consider the fundamental theorem of asset pricing (FTAP) and hedging prices of options under non-dominated model uncertainty and portfolio constrains in discrete time. We first show that no arbitrage holds if and only if there exists some family of probability measures such that any admissible portfolio value process is a local super-martingale under these measures. We also get the non-dominated optional decomposition with constraints. From this decomposition, we get duality of the super-hedging prices of European options, as well as the sub- and super-hedging prices of American options. Finally, we get the FTAP and duality of super-hedging prices in a market where stocks are traded dynamically and options are traded statically.
Author: Pablo Koch-Medina
Publisher: Springer Nature
ISBN: 3030397246
Category : Mathematics
Languages : en
Pages : 448
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Book Description
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.
Author: Jochen E.M. Wilhelm
Publisher: Springer Science & Business Media
ISBN: 3642500943
Category : Business & Economics
Languages : en
Pages : 124
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Book Description
The present 'Introductory Lectures on Arbitrage-based Financial Asset Pricing' are a first attempt to give a comprehensive presentation of Arbitrage Theory in a discrete time framework (by the way: all the re sults given in these lectures apply to a continuous time framework but, probably, in continuous time we could achieve stronger results - of course at the price of stronger assumptions). It has been turned out in the last few years that capital market theory as derived and evolved from the capital asset pricing model (CAPM) in the middle sixties, can, to an astonishing extent, be based on arbitrage arguments only, rather than on mean-variance preferences of investors. On the other hand, ar bitrage arguments provided access to a wider range of results which could not be obtained by standard CAPM-methods, e. g. the valuation of contingent claims (derivative assets) Dr the_ investigation of futures prices. To some extent the presentation will loosely follow historical lines. A selected set of capital asset pricing models will be derived according to their historical progress and their increasing complexity as well. It will be seen that they all share common structural properties. After having made this observation the presentation will become an axiomatical one: it will be stated in precise terms what arbitrage is about and what the consequences are if markets do not allow for risk-free arbitrage opportunities. The presentation will partly be accompanied by an illus trating example: two-state option pricing.
Author: Christian Koch
Publisher: GRIN Verlag
ISBN: 3640277856
Category : Business & Economics
Languages : en
Pages : 81
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Diploma Thesis from the year 1996 in the subject Business economics - Banking, Stock Exchanges, Insurance, Accounting, grade: 1,3, European Business School - International University Schlo Reichartshausen Oestrich-Winkel, 160 entries in the bibliography, language: English, abstract: A "few surprises" could be the trivial answer of the Arbitrage Pricing Theory if asked for the major determinants of stock returns. The APT was developed as a traceable framework of the main principles of capital asset pricing in financial markets. It investigates the causes underlying one of the most important fields in financial economics, namely the relationship between risk and return. The APT provides a thorough understanding of the nature and origins of risk inherent in financial assets and how capital markets reward an investor for bearing risk. Its fundamental intuition is the absence of arbitrage which is, indeed, central to finance and which has been used in virtually all areas of financial study. Since its introduction two decades ago, the APT has been subject to extensive theoretical as well as empirical research. By now, the arbitrage theory is well established in both respects and has enlightened our perception of capital markets. This paper aims to present the APT as an appropriate instrument of capital asset pricing and to link its principles to the valuation of risky income streams. The objective is also to provide an overview of the state of art of APT in the context of alternative capital market theories. For this purpose, Section 2 describes the basic concepts of the traditional asset pricing model, the CAPM, and indicates differences to arbitrage theory. Section 3 constitutes the main part of this paper introducing a derivation of the APT. Emphasis is laid on principles rather than on rigorous proof. The intuition of the pricing formula and its consistency with the state space preference theory are discussed. Important contributions to the APT are classified and br
Author: Tomas Björk
Publisher:
ISBN: 0191525103
Category : Arbitrage
Languages : en
Pages : 325
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Book Description
This text provides an accessible introduction to the classical mathematical underpinnings of modern finance. Professor Bjork concentrates on the probabilistic theory of continuous arbitrage pricing of financial derivatives.
Author: Robert A. Jarrow
Publisher: Springer
ISBN: 3319778218
Category : Mathematics
Languages : en
Pages : 457
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Book Description
Yielding new insights into important market phenomena like asset price bubbles and trading constraints, this is the first textbook to present asset pricing theory using the martingale approach (and all of its extensions). Since the 1970s asset pricing theory has been studied, refined, and extended, and many different approaches can be used to present this material. Existing PhD–level books on this topic are aimed at either economics and business school students or mathematics students. While the first mostly ignore much of the research done in mathematical finance, the second emphasizes mathematical finance but does not focus on the topics of most relevance to economics and business school students. These topics are derivatives pricing and hedging (the Black–Scholes–Merton, the Heath–Jarrow–Morton, and the reduced-form credit risk models), multiple-factor models, characterizing systematic risk, portfolio optimization, market efficiency, and equilibrium (capital asset and consumption) pricing models. This book fills this gap, presenting the relevant topics from mathematical finance, but aimed at Economics and Business School students with strong mathematical backgrounds.
Author: Dietmar G. Maringer
Publisher: Springer Science & Business Media
ISBN: 0387258531
Category : Business & Economics
Languages : en
Pages : 238
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Book Description
Portfolio Management with Heuristic Optimization consist of two parts. The first part (Foundations) deals with the foundations of portfolio optimization, its assumptions, approaches and the limitations when "traditional" optimization techniques are to be applied. In addition, the basic concepts of several heuristic optimization techniques are presented along with examples of how to implement them for financial optimization problems. The second part (Applications and Contributions) consists of five chapters, covering different problems in financial optimization: the effects of (linear, proportional and combined) transaction costs together with integer constraints and limitations on the initital endowment to be invested; the diversification in small portfolios; the effect of cardinality constraints on the Markowitz efficient line; the effects (and hidden risks) of Value-at-Risk when used the relevant risk constraint; the problem factor selection for the Arbitrage Pricing Theory.
Author: Helmut Elsinger
Publisher:
ISBN:
Category : Arbitrage
Languages : en
Pages : 37
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