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It is argued that the growth in the breadth of option strikes traded after the financial crisis of 2008 poses difficulties for the use of Fourier inversion methodologies in volatility surface calibration. Continuous time Markov chain approximations are proposed as an alternative. They are shown...
Persistent link: https://www.econbiz.de/10012022144
The problem of fair pricing of contingent claims is well understood in the contex of an arbitrage free, complete … financial market, with perfect information : the so-called arbitrage approach permits to construct a unique valuation operator …
Persistent link: https://www.econbiz.de/10010707894
The problem of fair pricing of contingent claims is well understood in the contex of an arbitrage free, complete … financial market, with perfect information : the so-called arbitrage approach permits to construct a unique valuation operator …
Persistent link: https://www.econbiz.de/10008832173
resultat d'absence d'arbitrage. Puis, nous l'appliquons afin de retrouver les resultats deja connus sur les couts de …
Persistent link: https://www.econbiz.de/10005630759
The use of equilibrium models in economics springs from the desire for parsimonious models of economic phenomena that take human reasoning into account. This approach has been the cornerstone of modern economic theory. We explain why this is so, extolling the virtues of equilibrium theory; then...
Persistent link: https://www.econbiz.de/10004976721
fulfils a minimal no-arbitrage condition for an economically viable financial market. Furthermore, we demonstrate that … illustrating and clarifying several points on asset price bubbles and the economics of arbitrage. …
Persistent link: https://www.econbiz.de/10004984487
A small but ambitious literature uses affine arbitrage-free models to estimate jointly U.S. Treasury term premiums and …
Persistent link: https://www.econbiz.de/10010222892
Spreads of agency mortgage-backed securities (MBS) vary significantly in the cross section and over time, but the sources of this variation are not well understood. We document that, in the cross section, MBS spreads adjusted for the prepayment option show a pronounced smile with respect to the...
Persistent link: https://www.econbiz.de/10010404146
to be locally arbitrage free, however, it still permits some form of arbitrage. Finally, a subclass of arbitrage free … portfolio ; arbitrage amount …
Persistent link: https://www.econbiz.de/10009614289
We derive a model-free option-based formula to estimate the contribution of market frictions to expected returns (CFER) within an asset pricing setting. We estimate CFER for the U.S. optionable stocks. We document that CFER is sizable, it predicts stock returns and it subsumes the effect of...
Persistent link: https://www.econbiz.de/10011932555