Dependence of Left-Skewed Payoff Distributions on Risky-Asset Price Uncertainty

2005 ◽  
Author(s):  
Jacek B. Krawczyk
Keyword(s):  
Asset Price ◽  
Risky Asset ◽  
Price Uncertainty

UTILITY MAXIMIZATION IN A PURE JUMP MODEL WITH PARTIAL OBSERVATION

2010 ◽  
Vol 25 (1) ◽  
pp. 29-54 ◽  
Author(s):  
Paola Tardelli
Keyword(s):  
Utility Maximization ◽  
Point Processes ◽  
Marked Point ◽  
Asset Price ◽  
Main Tool ◽  
Risky Asset ◽  
Marked Point Processes ◽  
Marked Point Process ◽  
Underlying Event ◽  
Jump Model

This article considers the asset price movements in a financial market when risky asset prices are modeled by marked point processes. Their dynamics depend on an underlying event arrivals process—a marked point process having common jump times with the risky asset price process. The problem of utility maximization of terminal wealth is dealt with when the underlying event arrivals process is assumed to be unobserved by the market agents using, as the main tool, backward stochastic differential equations. The dual problem is studied. Explicit solutions in a particular case are given.

Asymmetric Information, Heterogeneous Belief and Risky Asset Pricing

2012 ◽  
Vol 430-432 ◽  
pp. 1095-1098
Author(s):  
Xiao Qiang Yu ◽  
Shan Cun Liu
Keyword(s):  
Asset Pricing ◽  
Asymmetric Information ◽  
Empirical Research ◽  
Asset Price ◽  
Risky Asset ◽  
Pricing Model ◽  
Asset Pricing Model

In this paper, we put forward the assumption that investors have asymmetric information and heterogeneous belief and derive an asset pricing model. The model suggests the extent of asymmetric information or heterogeneous belief is positively correlated with the risky asset price, which matches the former empirical research.

scholarly journals Testing for the Disposition Effect on Optimal Stopping Decisions

2015 ◽  
Vol 105 (5) ◽  
pp. 371-375 ◽  
Author(s):  
Jacopo Magnani
Keyword(s):  
Laboratory Test ◽  
Optimal Stopping ◽  
Continuous Time ◽  
Asset Price ◽  
Risky Asset ◽  
Disposition Effect ◽  
Individual Investors ◽  
Optimal Behavior

This paper develops a new laboratory test of the hypothesis that individual investors sell winners too early and ride losers too long. In the experiment, subjects invest in a risky asset, whose price evolves in near-continuous time, and they are provided with the option to liquidate it at a fixed salvage value. Optimal behavior is characterized by an upper and a lower stopping thresholds in the asset price space, thus producing a clear rational benchmark and eliminating known confounds. This design allows me to detect and quantify the disposition effect in a sample of 108 subjects.

scholarly journals Perpetual American Defaultable Options in Models with Random Dividends and Partial Information

Risks ◽  
2018 ◽  
Vol 6 (4) ◽  
pp. 127 ◽  
Author(s):  
Pavel V. Gapeev ◽  
Hessah Al Motairi
Keyword(s):  
Free Boundary Problems ◽  
Partial Information ◽  
Asset Price ◽  
Risky Asset ◽  
Boundary Problems ◽  
Variable Formula ◽  
Closed Form Solutions ◽  
Price Process ◽  
Pricing Problems ◽  
Change Of Variable

We present closed-form solutions to the perpetual American dividend-paying put and call option pricing problems in two extensions of the Black–Merton–Scholes model with random dividends under full and partial information. We assume that the dividend rate of the underlying asset price changes its value at a certain random time which has an exponential distribution and is independent of the standard Brownian motion driving the price of the underlying risky asset. In the full information version of the model, it is assumed that this time is observable to the option holder, while in the partial information version of the model, it is assumed that this time is unobservable to the option holder. The optimal exercise times are shown to be the first times at which the underlying risky asset price process hits certain constant levels. The proof is based on the solutions of the associated free-boundary problems and the applications of the change-of-variable formula.

STOCHASTIC PORTFOLIO OPTIMIZATION WITH LOG UTILITY

2006 ◽  
Vol 09 (06) ◽  
pp. 869-887 ◽  
Author(s):  
TAO PANG
Keyword(s):  
Dynamic Programming ◽  
Interest Rate ◽  
Portfolio Optimization ◽  
Asset Price ◽  
Infinite Horizon ◽  
Risky Asset ◽  
Dynamic Programming Principle ◽  
The Interest Rate ◽  
Optimal Consumption And Investment ◽  
Optimal Investment And Consumption

A portfolio optimization problem on an infinite time horizon is considered. Risky asset price obeys a logarithmic Brownian motion, and the interest rate varies according to an ergodic Markov diffusion process. Moreover, the interest rate fluctuation is correlated with the risky asset price fluctuation. The goal is to choose optimal investment and consumption policies to maximize the infinite horizon expected discounted log utility of consumption. A dynamic programming principle is used to derive the dynamic programming equation (DPE). The explicit solutions for optimal consumption and investment control policies are obtained. In addition, for a special case, an explicit formula for the value function is given.

scholarly journals Inflation and Risky Investments

2020 ◽  
Vol 13 (12) ◽  
pp. 329
Author(s):  
Hannu Laurila ◽  
Jukka Ilomäki
Keyword(s):  
Absolute Risk ◽  
Asset Price ◽  
Market Price ◽  
Risky Asset ◽  
Market Model ◽  
Asset Market ◽  
Risky Assets ◽  
Fiat Money ◽  
Initial Wealth ◽  
Prediction Coefficient

The paper uses a Walrasian two-period financial market model with informed and uninformed constant absolute risk averse (CARA) rational investors and noise traders. The investors allocate their initial wealth between risky assets and risk-free fiat money. The analysis concentrates on the effects of decreasing value of money, or inflation, on the rational investors’ behavior and the asset market. The main findings are the following: Inflation does not affect the informed investors’ prediction coefficient but makes that of the uninformed investors diminish. Inflation does not affect rational investors’ risk but makes the asset price more sensitive to fundament-based and sentiment-based shocks. Inflation changes the market price of the risky asset rise; while it has no effects on the informed investors’ demand of the risky asset, it does affect the uninformed investors’ demand. Finally, inflation makes the asset market more volatile.

scholarly journals European Option Pricing with Transaction Costs in Lévy Jump Environment

2014 ◽  
Vol 2014 ◽  
pp. 1-6
Author(s):  
Jiayin Li ◽  
Huisheng Shu ◽  
Xiu Kan
Keyword(s):  
Option Pricing ◽  
Transaction Costs ◽  
Asset Price ◽  
Risky Asset ◽  
Time Interval ◽  
European Option ◽  
Price Model ◽  
Time Model ◽  
European Option Pricing ◽  
Asset Price Model

The European option pricing problem with transaction costs is investigated for a risky asset price model with Lévy jump. By the aid of arbitrage pricing theory and the generalized Itô formula (which includes Poisson jump), the explicit solution to the risk asset price model is given. According to arbitrage-free principle, we first discretize the continuous-time model. Then, in each small time interval, the transaction costs are introduced. By using theΔ-hedging strategy, the explicit solutions of the European options pricing formula with transaction costs are given for the risky asset price model with Lévy jump.

RISK-NEUTRAL MEASURES AND PRICING FOR A PURE JUMP PRICE PROCESS

2009 ◽  
Vol 24 (1) ◽  
pp. 47-76 ◽  
Author(s):  
Anna Gerardi ◽  
Paola Tardelli
Keyword(s):  
Point Processes ◽  
Marked Point ◽  
Asset Price ◽  
Risky Asset ◽  
Marked Point Processes ◽  
Marked Point Process ◽  
Martingale Measure ◽  
Price Process ◽  
Risk Neutral Measures

This article considers the asset price movements in a financial market when risky asset prices are modeled by marked point processes. Their dynamics depend on an underlying event arrivals process, modeled again by a marked point process. Taking into account the presence of catastrophic events, the possibility of common jump times between the risky asset price process and the arrivals process is allowed. By setting and solving a suitable control problem, the characterization of the minimal entropy martingale measure is obtained. In a particular case, a pricing problem is also discussed.

scholarly journals Partially informed investors: hedging in an incomplete market with default

2015 ◽  
Vol 52 (03) ◽  
pp. 718-735 ◽  
Author(s):  
P. Tardelli
Keyword(s):  
Point Processes ◽  
Value Function ◽  
Partial Information ◽  
Marked Point ◽  
Asset Price ◽  
Risky Asset ◽  
Marked Point Processes ◽  
Marked Point Process ◽  
Control Problems ◽  
The Value Function

In a defaultable market, an investor trades having only partial information about the behavior of the market. Taking into account the intraday stock movements, the risky asset prices are modelled by marked point processes. Their dynamics depend on an unobservable process, representing the amount of news reaching the market. This is a marked point process, which may have common jump times with the risky asset price processes. The problem of hedging a defaultable claim is studied. In order to discuss all these topics, in this paper we examine stochastic control problems using backward stochastic differential equations (BSDEs) and filtering techniques. The goal of this paper is to construct a sequence of functions converging to the value function, each of these is the unique solution of a suitable BSDE.

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