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  • Open Daily: 10am - 10pm
    Alley-side Pickup: 10am - 7pm

    3038 Hennepin Ave Minneapolis, MN
    612-822-4611

Open Daily: 10am - 10pm | Alley-side Pickup: 10am - 7pm
3038 Hennepin Ave Minneapolis, MN
612-822-4611
Pricing in (In)Complete Markets: Structural Analysis and Applications

Pricing in (In)Complete Markets: Structural Analysis and Applications

Esser, Angelika

Paperback

Series: Lecture Notes in Economic and Mathematical Systems, Book 537

Investing & FinanceProbability & Statistics

ISBN10: 3540208178
ISBN13: 9783540208174
Publisher: Springer Nature
Published: Jan 23 2004
Pages: 122
Weight: 0.45
Height: 0.30 Width: 6.14 Depth: 9.21
Language: English

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.

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