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Time Consistent Dynamic Limit Order Books Calibrated on Options

Bion-Nadal, Jocelyne
Fonte: Universidade Cornell Publicador: Universidade Cornell
Tipo: Artigo de Revista Científica
Publicado em 22/09/2008 Português
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In an incomplete financial market, the axiomatic of Time Consistent Pricing Procedure (TCPP), recently introduced, is used to assign to any financial asset a dynamic limit order book, taking into account both the dynamics of basic assets and the limit order books for options. Kreps-Yan fundamental theorem is extended to that context. A characterization of TCPP calibrated on options is given in terms of their dual representation. In case of perfectly liquid options, these options can be used as the basic assets to hedge dynamically. A generic family of TCPP calibrated on option prices is constructed, from cadlag BMO martingales.

Large Financial Markets and Asymptotic Arbitrage with Small Transaction Costs

Klein, Irene; Lepinette, Emmanuel; Ostafe, Lavinia
Fonte: Universidade Cornell Publicador: Universidade Cornell
Tipo: Artigo de Revista Científica
Publicado em 02/11/2012 Português
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We give characterizations of asymptotic arbitrage of the first and second kind and of strong asymptotic arbitrage for large financial markets with small proportional transaction costs $\la_n$ on market $n$ in terms of contiguity properties of sequences of equivalent probability measures induced by $\la_n$--consistent price systems. These results are analogous to the frictionless case. Our setting is simple, each market $n$ contains two assets with continuous price processes. The proofs use quantitative versions of the Halmos--Savage Theorem and a monotone convergence result of nonnegative local martingales. Moreover, we present an example admitting a strong asymptotic arbitrage without transaction costs; but with transaction costs $\la_n>0$ on market $n$ ($\la_n\to0$ not too fast) there does not exist any form of asymptotic arbitrage.

A simple time-consistent model for the forward density process

Hult, Henrik; Lindskog, Filip; Nykvist, Johan
Fonte: Universidade Cornell Publicador: Universidade Cornell
Tipo: Artigo de Revista Científica
Publicado em 21/01/2013 Português
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In this paper a simple model for the evolution of the forward density of the future value of an asset is proposed. The model allows for a straightforward initial calibration to option prices and has dynamics that are consistent with empirical findings from option price data. The model is constructed with the aim of being both simple and realistic, and avoid the need for frequent re-calibration. The model prices of $n$ options and a forward contract are expressed as time-varying functions of an $(n+1)$-dimensional Brownian motion and it is investigated how the Brownian trajectory can be determined from the trajectories of the price processes. An approach based on particle filtering is presented for determining the location of the driving Brownian motion from option prices observed in discrete time. A simulation study and an empirical study of call options on the S&P 500 index illustrates that the model provides a good fit to option price data.