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This paper constructs and compares various total return world stock indices based on daily data. Due to diversification these indices are noticeably similar. A diversification theorem identifies any diversified portfolio as a proxy for the growth optimal portfolio. The paper constructs a...
Persistent link: https://www.econbiz.de/10004984555
This paper constructs and compares various total return world stock indices based on daily data. Due to diversification these indices are noticeably similar. A diversification theorem identifies any diversified portfolio as a proxy for the growth optimal portfolio. The paper constructs a...
Persistent link: https://www.econbiz.de/10005041731
A stochastic process v(t) is considered as a model for asset's spot volatility. A new approach is introduced for predicting future spot volatility and future volatility surface using a finite set of observed option prices. When the volatility parameter σ2 in the Black-Scholes formula[image...
Persistent link: https://www.econbiz.de/10005495395
A new market-based approach to evaluating options on an asset is offered. The model corresponds to the real situations encountered in the market: option prices are not uniquely determined by their underlying asset but mainly by another factor, namely stochastic market volatility (or simply SMV)....
Persistent link: https://www.econbiz.de/10005495917
We review the nature of some well-known phenomena such as volatility smiles, convexity adjustments and parallel derivative markets. We propose that the market is incomplete and postulate the existence of intrinsic risks in every contingent claim as a basis for understanding these phenomena. In a...
Persistent link: https://www.econbiz.de/10010888108
Persistent link: https://www.econbiz.de/10008222269
Persistent link: https://www.econbiz.de/10007225016
In this paper distributions are identified which suitably fit log-returns of the world stock index when these are expressed in units of different currencies. By searching for a best fit in the class of symmetric generalized hyperbolic distributions the maximum likelihood estimates appear to...
Persistent link: https://www.econbiz.de/10005495378
Without requiring the existence of an equivalent risk-neutral probability measure this paper studies a class of one-factor local volatility function models for stock indices under a benchmark approach. It is assumed that the dynamics for a large diversified index approximates that of the growth...
Persistent link: https://www.econbiz.de/10005495761
This paper considers a modification of the well known constant elasticity of variance model where it is used to model the growth optimal portfolio (GOP). It is shown that, for this application, there is no equivalent risk neutral pricing measure and therefore the classical risk neutral pricing...
Persistent link: https://www.econbiz.de/10005462646