Pricing in (In)Complete Markets

Structural Analysis and Applications

  • Angelika Esser

Part of the Lecture Notes in Economics and Mathematical Systems book series (LNE, volume 537)

Table of contents

  1. Front Matter
    Pages I-XI
  2. Angelika Esser
    Pages 1-7
  3. Angelika Esser
    Pages 9-22
  4. Angelika Esser
    Pages 55-67
  5. Angelika Esser
    Pages 95-96
  6. Back Matter
    Pages 97-124

About this book

Introduction

In this book, the authors investigate structural aspects of no arbitrage pricing of contingent claims and applications of the general pricing theory in the context of incomplete markets. A quasi-closed form pricing equation in terms of artificial probabilities is derived for arbitrary payoff structures. Moreover, a comparison between continuous and discrete models is presented, highlighting the major similarities and key differences. As applications, two sources of market incompleteness are considered, namely stochastic volatility and stochastic liquidity. Firstly, the general theory discussed before is applied to the pricing of power options in a stochastic volatility model. Secondly, the issue of liquidity risk is considered by focusing on the aspect of how asset price dynamics are affected by the trading strategy of a large investor.

Keywords

Arbitrage Incomplete Markets Martingale Pricing Power Options Stochastic Liquidity Stochastic Volatility calculus modeling

Authors and affiliations

  • Angelika Esser
    • 1
  1. 1.Faculty of Economics and Business AdministrationJohann Wolfgang Goethe-University FrankfurtFrankfurtGermany

Bibliographic information

  • DOI https://doi.org/10.1007/978-3-642-17065-2
  • Copyright Information Springer-Verlag Berlin Heidelberg 2004
  • Publisher Name Springer, Berlin, Heidelberg
  • eBook Packages Springer Book Archive
  • Print ISBN 978-3-540-20817-4
  • Online ISBN 978-3-642-17065-2
  • Series Print ISSN 0075-8442
  • About this book