A diffusion approximation to the Markov chains model of the financial market and the expected riskless profit under selling of call and put options

A discrete time model of financial markets is considered. It is assumed that the stock price evolution is described by a homogeneous Markov chain. In the focus of attention is the expected value of the guaranteed profit of the investor that arises when the jumps of the stock price are bounded. The suggested diffusion approximation for the Markov chain allows establishing a convenient approximate formula for the studied characteristic.

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Year of publication:	2005
Authors:	Nagaev, Alexander V. ; Nagaev, Sergei A. ; Kunst, Robert M.
Publisher:	Vienna : Institute for Advanced Studies (IHS)
Subject:	Markovscher Prozess \| Finanzmarkt \| Optionspreistheorie \| Hedging \| Zeitreihenanalyse \| Theorie \| ergodic and irreducible Markov chains \| stationary distribution \| local limit theorem \| upper hedge \| upper rational price

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Series:	Reihe Ökonomie / Economics Series ; 165
Type of publication:	Book / Working Paper
Type of publication (narrower categories):	Working Paper
Language:	English
Other identifiers:	741388626 [GVK] hdl:10419/72279 [Handle] RePEc:ihs:ihsesp:165 [RePEc]
Classification:	G12 - Asset Pricing ; G11 - Portfolio Choice ; G13 - Contingent Pricing; Futures Pricing
Source:	EconStor

Persistent link: https://ebvufind01.dmz1.zbw.eu/10010293729