scholarly journals Non-Arbitrage Models of Financial Markets

2021 ◽  
pp. 67-112
Author(s):  
N. S. Gonchar
Keyword(s):  
Financial Markets ◽  
Financial Market ◽  
Wide Class ◽  
Market Model ◽  
Martingale Measure ◽  
Fair Price ◽  
Risky Assets ◽  
Contingent Liabilities ◽  
Initial Measure

In the first part of the paper, we construct the models of the complete non-arbitrage financial markets for a wide class of evolutions of risky assets.This construction is based on the observation that for a certain class of risky as set evolutions the martingale measure is invariant with respect to these evolutions. For such a financial market model the only martingale measure being equivalent to an initial measure is built. On such a financial market,formulas for the fair price of contingent liabilities are presented. A multi-parameter model of the financial market is proposed, the martingale measure of which does not depend on the parameters of the model of the evolution of risky assets and is the only one.

Principles for modelling financial markets

1996 ◽  
Vol 33 (03) ◽  
pp. 601-613 ◽  
Author(s):  
Eckhard Platen ◽  
Rolando Rebolledo
Keyword(s):  
Financial Markets ◽  
Financial Market ◽  
Real World ◽  
Market Model ◽  
Rate Of Return ◽  
Probability Measures ◽  
Market Clearing ◽  
The Difference ◽  
Risk Free Rate ◽  
Free Rate

The paper introduces an approach focused towards the modelling of dynamics of financial markets. It is based on the three principles of market clearing, exclusion of instantaneous arbitrage and minimization of increase of arbitrage information. The last principle is equivalent to the minimization of the difference between the risk neutral and the real world probability measures. The application of these principles allows us to identify various market parameters, e.g. the risk-free rate of return. The approach is demonstrated on a simple financial market model, for which the dynamics of a virtual risk-free rate of return can be explicitly computed.

Principles for modelling financial markets

1996 ◽  
Vol 33 (3) ◽  
pp. 601-613 ◽  
Author(s):  
Eckhard Platen ◽  
Rolando Rebolledo
Keyword(s):  
Financial Markets ◽  
Financial Market ◽  
Real World ◽  
Market Model ◽  
Rate Of Return ◽  
Probability Measures ◽  
Market Clearing ◽  
The Difference ◽  
Risk Free Rate ◽  
Free Rate

The paper introduces an approach focused towards the modelling of dynamics of financial markets. It is based on the three principles of market clearing, exclusion of instantaneous arbitrage and minimization of increase of arbitrage information. The last principle is equivalent to the minimization of the difference between the risk neutral and the real world probability measures. The application of these principles allows us to identify various market parameters, e.g. the risk-free rate of return. The approach is demonstrated on a simple financial market model, for which the dynamics of a virtual risk-free rate of return can be explicitly computed.

PERFECT HEDGING OF INDEX DERIVATIVES UNDER A MINIMAL MARKET MODEL

2002 ◽  
Vol 05 (07) ◽  
pp. 757-774 ◽  
Author(s):  
DAVID HEATH ◽  
ECKHARD PLATEN
Keyword(s):  
Term Structure ◽  
Financial Market ◽  
Market Model ◽  
Martingale Measure ◽  
Local Martingale ◽  
Minimal Set ◽  
Benchmark Portfolio ◽  
Strict Local Martingale ◽  
Minimal Market Model ◽  
Standard Risk

The paper presents a financial market model that generates stochastic volatility using a minimal set of factors. These factors, formed by transformations of square root processes, model the dynamics of different denominations of a benchmark portfolio. Benchmarked prices are assumed to be local martingales. Numerical results for the pricing and hedging of basic derivatives on indices are described for the minimal market model. This includes cases where the standard risk neutral pricing methodology fails because of the presence of a strict local martingale measure. However, payoffs can be perfectly hedged using self-financing strategies and a form of arbitrage exists. This is illustrated by hedge simulations. The different term structure of implied volatilities is documented for calls and puts on an index.

scholarly journals Valuing Peace: The Effects of Financial Market Exposure on Votes and Political Attitudes

Econometrica ◽  
2019 ◽  
Vol 87 (5) ◽  
pp. 1561-1588 ◽  
Author(s):  
Saumitra Jha ◽  
Moses Shayo
Keyword(s):  
Financial Markets ◽  
Financial Market ◽  
Political Attitudes ◽  
Peace Process ◽  
Superior Performance ◽  
Financial Assets ◽  
Material Incentive ◽  
Nonfinancial Information ◽  
Political Messages ◽  
Economic Risks

Can participation in financial markets lead individuals to reevaluate the costs of conflict, change their political attitudes, and even their votes? Prior to the 2015 Israeli elections, we randomly assigned Palestinian and Israeli financial assets to likely voters and incentivized them to actively trade for up to 7 weeks. No political messages or nonfinancial information were included. The treatment systematically shifted vote choices toward parties more supportive of the peace process. This effect is not due to a direct material incentive to vote a particular way. Rather, the treatment reduces opposition to concessions for peace and changes awareness of the broader economic risks of conflict. While participants who were assigned Palestinian assets are more likely to associate their assets' performance with peace, they are less engaged in the experiment. Combined with the superior performance of Israeli stocks during the study period, the ultimate effects of Israeli and Palestinian assets are similar.

scholarly journals International Liquidity and Exchange Rate Dynamics *

2015 ◽  
Vol 130 (3) ◽  
pp. 1369-1420 ◽  
Author(s):  
Xavier Gabaix ◽  
Matteo Maggiori
Keyword(s):  
Exchange Rate ◽  
Financial Markets ◽  
Exchange Rates ◽  
Capital Flows ◽  
Risk Sharing ◽  
Market Model ◽  
International Liquidity ◽  
Balance Sheets ◽  
Macroeconomic Analysis ◽  
International Pricing

Abstract We provide a theory of the determination of exchange rates based on capital flows in imperfect financial markets. Capital flows drive exchange rates by altering the balance sheets of financiers that bear the risks resulting from international imbalances in the demand for financial assets. Such alterations to their balance sheets cause financiers to change their required compensation for holding currency risk, thus affecting both the level and volatility of exchange rates. Our theory of exchange rate determination in imperfect financial markets not only helps rationalize the empirical disconnect between exchange rates and traditional macroeconomic fundamentals, it also has real consequences for output and risk sharing. Exchange rates are sensitive to imbalances in financial markets and seldom perform the shock absorption role that is central to traditional theoretical macroeconomic analysis. Our framework is flexible; it accommodates a number of important modeling features within an imperfect financial market model, such as nontradables, production, money, sticky prices or wages, various forms of international pricing-to-market, and unemployment.

Critical Value-Based Power Options Pricing Problems in Uncertain Financial Markets

2021 ◽  
pp. 2150002
Author(s):  
Guimin Yang ◽  
Yuanguo Zhu
Keyword(s):  
Financial Markets ◽  
Financial Market ◽  
Numerical Experiments ◽  
Critical Value ◽  
The Other ◽  
Options Pricing ◽  
Underlying Asset ◽  
Pricing Problems ◽  
Fractional Differential ◽  
The One

Compared with investing an ordinary options, investing the power options may possibly yield greater returns. On the one hand, the power option is the best choice for those who want to maximize the leverage of the underlying market movements. On the other hand, power options can also prevent the financial market changes caused by the sharp fluctuations of the underlying assets. In this paper, we investigate the power option pricing problem in which the price of the underlying asset follows the Ornstein–Uhlenbeck type of model involving an uncertain fractional differential equation. Based on critical value criterion, the pricing formulas of European power options are derived. Finally, some numerical experiments are performed to illustrate the results.

The Capital Market Authority Effectiveness in the Regulation of Financial Markets perspectives from the financial sector actors

2012 ◽  
Vol 02 (11) ◽  
pp. 15-24
Author(s):  
Charles Kombo Okioga
Keyword(s):  
Financial Markets ◽  
Financial Market ◽  
Capital Markets ◽  
Capital Market ◽  
Financial Regulation ◽  
International Standards ◽  
Market Regulation ◽  
Financial Market Regulation ◽  
Market Participants ◽  
New Business

Capital Market Authority in Kenya is in a development phase in order to be effective in the regulation of the financial markets. The market participants and the regulators are increasingly adopting international standards in order to make the capital markets in sync with those of developed markets. New products are being introduced and new business lines are being established. The Capital Markets Authority (Regulator) is constantly reviewing existing regulations and recommending changes to regulate the market properly. Business lines and activities are being harmonized by market participants to provide a one stop solution in order to meet the financial and securities services needs of the investors. The convergence of business lines and activities of market intermediaries gives rise to the diversity of a firm’s business operations to meet multiplicity of regulations that its activities are subject to. The methodology used in this study was designed to examine the relationship between capital markets Authority effective regulation and the performance of the financial markets. The study used correlation design, the study population consisted of 30 employees in financial institutions regulated by Capital Markets Authority and 80 investors. The study found out that effective financial market regulation has a significant relationship with the financial market performance indicated by (r=0.571, p<0.01) and (r=0.716, p≤0.01, the study recommended a further research on the factors that hinder effective financial regulation by the Capital Markets Authority.

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