1,720,986 research outputs found
"Arbitrage, Linear Programming and Martingales in Securities Markets Bid-Ask Spreads"
No full textarbitrage, linear programming and transaction cost
Arbitrage theory in discrete and continuous time : lecture notes for the course Quantitative finance and derivatives
No full textLecture notes for the graduate course Quantitative FInance and Derivatives I, MS in Finance, Bocconi universit
Existence of equivalent Martingale measures in finite dimensional securities markets
No full textwe characterize the set of all price-dividend systems that admit numeraire
Teoria dell'arbitraggio in tempo discreto e continuo : materiale didattico per il corso di Finanza quantitativa e derivati
No full textDispense per il corso di laurea specialistica Finanza Quantitativa e Derivati, I parte, Università Boccon
Effective securities in arbitrage-free markets with bid-ask spreads at liquidation: a linear programming characterization
No full textWe consider a securities market with bid–ask spreads at any period, including liquidation. Although the minimum-cost super-replication problem is non-linear, we introduce an auxiliary problem that allows us to characterize no-arbitrage via linear programming techniques. We introduce the notion of effective new security and show that effectiveness restricts the no-arbitrage bid and ask prices of a new security to the interval defined by the minimum-cost problem. We discuss in detail the cases in which the boundaries of this interval can be reached without violating no-arbitrag
Numeraires, equivalent martingale measures and completeness in finite dimensional securities markets
No full textA numeraire is a portfolio that, when securities, prices and dividends are expressed in its units, admits an equivalent martingale measure transforming any gain process into a martingale. We show that the set of equivalent martingale measures of a numeraire is one-to-one with a subset of Arrow-Debreu state prices, which becomes the whole set if and only if the numeraire is self-financing. Hence our result extends those (e.g. Harrison and Kreps (Journal of Economic Theory, 1979, 20, 381-408) Dothan (Prices in Financial Markets, Oxford Univ. Press, New York, 1990)) stated for specific self-financing numeraires. We also identify markets admitting self-financing numeraires, and characterize completeness, in terms of equivalent martingale measures, without requiring that specific securities be traded
Envelope theorems in Banach lattices and asset pricing
Full text linkWe develop envelope theorems for optimization problems in which the value function
takes values in a general Banach lattice. We consider both the special case of a convex
choice set and a concave objective function and the more general case case of an
arbitrary choice set and a general objective function. We apply our results to discuss
the existence of a well-defined notion of marginal utility of wealth in optimal discrete-
time, finite-horizon consumption-portfolio problems with an unrestricted information
structure and preferences allowed to display habit formation and state dependency
Valuation of sinking-fund bonds in the Vasicek and CIR frameworks
No full textIn a sinking-fund bond, the issuer is required to retire portions of the bond prior to maturity, with the option of doing so either by calling the bonds by lottery, or by buying them back at their market value. This paper discusses the valuation of a default-free sinking-fund bond issue in the Vasicek (1977) and, alternatively, the Cox, Ingersoll and Ross (CIR) (1985) frameworks. We show in particular that, calling the bond issue without the delivery option ‘corresponding serial’, and the one without the prepayment feature ‘corresponding coupon’, under no-arbitrage a sinking-fund bond can be priced either in terms of the corresponding coupon bond and a bond call option, or in terms of the corresponding serial and a bond put option. We also present a detailed comparative-statics analysis of our valuation model, where we show that a sinking-fund bond has a stochastic duration intermediate between the ones of the corresponding serial and coupon bonds. We argue that such a feature gives a further rational for the presence of the delivery option. Moreover, we compare our results with the ones of Ho (1985), who has previously discussed the valuation problem under scrutiny. © 1996, Taylor & Francis Group, LLC
Dynamic versus one-period completeness in event-tree security markets
No full textEvent-tree security markets, Dynamic completeness, One-period completeness, Law of one price, G10, G12,
Long-run risk and the persistence of consumption shocks
No full textWe propose a decomposition for time series in components classified by levels of persistence. Employing this decomposition, we provide empirical evidence that consumption growth contains predictable components highly correlated with well-known proxies of consumption variability. These components generate a term-structure of sizable risk premia. At low frequencies we identify a component correlated with long-run productivity growth and commanding a yearly premium of approximately 2%. At high frequencies we identify a component with yearly half-life, which contributes to the equity premium for another 2%. Accounting for persistence heterogeneity, we obtain an estimate of the IES strictly above one and robust across subsamples
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