Can the Market Divide and Multiply? A Case of 807 Percent Mispricing in Absence of Arbitrage Risk

2018 ◽  
Author(s):  
Marc Schauten ◽  
Martijn J. van den Assem ◽  
Dennie van Dolder ◽  
Remco C.J. Zwinkels
Keyword(s):  
Arbitrage Risk ◽  
Absence Of Arbitrage

scholarly journals NONPARAMETRIC ESTIMATES OF OPTION PRICES AND RELATED QUANTITIES

2019 ◽  
Vol 22 (07) ◽  
pp. 1950040
Author(s):  
GIANLUCA CASSESE
Keyword(s):  
Market Imperfections ◽  
Relative Distance ◽  
Time Behavior ◽  
Option Prices ◽  
Market Returns ◽  
Actual Density ◽  
Nonparametric Estimates ◽  
Absence Of Arbitrage ◽  
Call Function

We propose a new nonparametric technique to estimate the call function based on the superhedging principle. This approach requires minimal assumptions on absence of arbitrage and other market imperfections. The estimates so obtained are then combined with SNP estimates of the actual density of market returns. This permits to investigate the time behavior of the relative distance between the two densities obtained. Our empirical findings suggest that the more the two densities differ, the shorter is time to maturity, suggesting a major role of uncertainty over shorter than longer horizons.

Arbitrage Risk and the Book-to-Market Anomaly

2002 ◽  
Author(s):  
Ashiq Ali ◽  
Lee-Seok Hwang ◽  
Mark A. Trombley
Keyword(s):  
Arbitrage Risk ◽  
Market Anomaly

Multidimensional Models: Martingale Approach

2019 ◽  
pp. 191-201
Author(s):  
Tomas Björk
Keyword(s):  
Market Price ◽  
Representation Formula ◽  
Explicit Representation ◽  
Martingale Measure ◽  
Market Price Of Risk ◽  
Martingale Approach ◽  
Price Of Risk ◽  
Equivalent Martingale ◽  
Absence Of Arbitrage ◽  
Multidimensional Models

In this chapter we study a very general multidimensional Wiener-driven model using the martingale approach. Using the Girsanov Theorem we derive the martingale equation which is used to find an equivalent martingale measure. We provide conditions for absence of arbitrage and completeness of the model, and we discuss hedging and pricing. For Markovian models we derive the relevant pricing PDE and we also provide an explicit representation formula for the stochastic discount factor. We discuss the relation between the market price of risk and the Girsanov kernel and finally we derive the Hansen–Jagannathan bounds for the Sharpe ratio.

scholarly journals Pension Scheme Asset Allocation with Taxation Arbitrage, Risk Sharing and Default Insurance

2004 ◽  
Vol 10 (5) ◽  
pp. 1111-1131 ◽  
Author(s):  
C. M. S. Sutcliffe
Keyword(s):  
Private Sector ◽  
Asset Allocation ◽  
Risk Sharing ◽  
Pension Funds ◽  
The Other ◽  
Pension Scheme ◽  
Economic Factors ◽  
Risk Return ◽  
Pension Schemes ◽  
Arbitrage Risk

ABSTRACTThe asset allocation is a crucial decision for pension funds, and this paper analyses the economic factors which determine this choice. The analysis proceeds on the basis that, in the absence of taxation, risk sharing and default insurance, the asset allocation between equities and bonds is indeterminate and governed by the risk/return preferences of the trustees and the employer. If the employing company and its shareholders are subject to taxation, there is a tax advantage in a largely bond allocation. Risk sharing between the employer and the employees often means that one group favours a high equity allocation, while the other favours a low equity allocation. Underpriced default insurance creates an incentive for a high equity allocation. When taxation, risk sharing and underpriced default insurance are all present, it is concluded that the appropriate asset allocation varies with the circumstances of the scheme; but that a high equity allocation is probably inappropriate for many private sector pension schemes.

Arbitrage risk and the book-to-market anomaly

2003 ◽  
Vol 69 (2) ◽  
pp. 355-373 ◽  
Author(s):  
Ashiq Ali ◽  
Lee-Seok Hwang ◽  
Mark A. Trombley
Keyword(s):  
Arbitrage Risk ◽  
Market Anomaly

Arbitrage risk and the turnover anomaly

2013 ◽  
Vol 37 (11) ◽  
pp. 4172-4182 ◽  
Author(s):  
Pin-Huang Chou ◽  
Tsung-Yu Huang ◽  
Hung-Jeh Yang
Keyword(s):  
Arbitrage Risk

The Minimal Entropy Martingale Measure for Exponential Markov Chains

2013 ◽  
Vol 50 (02) ◽  
pp. 344-358
Author(s):  
Young Lee ◽  
Thorsten Rheinländer
Keyword(s):  
Differential Equations ◽  
Markov Chains ◽  
Continuous Time ◽  
Martingale Measure ◽  
Minimal Entropy Martingale Measure ◽  
Continuous Time Markov Chains ◽  
Absence Of Arbitrage

In this article we investigate the minimal entropy martingale measure for continuous-time Markov chains. The conditions for absence of arbitrage and existence of the minimal entropy martingale measure are discussed. Under this measure, expressions for the transition intensities are obtained. Differential equations for the arbitrage-free price are derived.

Mixed Brownian–fractional Brownian model: absence of arbitrage and related topics

Stochastics ◽  
2006 ◽  
Vol 78 (5) ◽  
pp. 281-300 ◽  
Author(s):  
Taras Androshchuk ◽  
Yuliya Mishura
Keyword(s):  
Brownian Model ◽  
Absence Of Arbitrage
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