Related papers: No-arbitrage pricing under cross-ownership

In this work, I generalize Merton's approach of pricing risky debt to the case where the interest rate risk is modeled by the CIR term structure. Closed form result for pricing the debt is given for the case where the firm value has…

The objective of this paper is to provide a comprehensive study no-arbitrage pricing of financial derivatives in the presence of funding costs, the counterparty credit risk and market frictions affecting the trading mechanism, such as…

We analyze multiline pricing and capital allocation in equilibrium no-arbitrage markets. Existing theories often assume a perfect complete market, but when pricing is linear, there is no diversification benefit from risk pooling and…

Based on the work of Suzuki (2002), we consider a generalization of Merton's asset valuation approach (Merton, 1974) in which two firms are linked by cross-ownership of equity and liabilities. Suzuki's results then provide no arbitrage…

"Fundamental theorem of asset pricing" roughly states that absence of arbitrage opportunity in a market is equivalent to the existence of a risk-neutral probability. We give a simple counterexample to this oversimplified statement. Prices…

In this paper, we examine the interlinkages among firms through a financial network where cross-holdings on both equity and debt are allowed. We relate mathematically the correlation among equities with the unconditional correlation of the…

We develop a version of the fundamental theorem of asset pricing for discrete-time markets with proportional transaction costs and model uncertainty. A robust notion of no-arbitrage of the second kind is defined and shown to be equivalent…

Much research in systemic risk is focused on default contagion. While this demands an understanding of valuation, fewer articles specifically deal with the existence, the uniqueness, and the computation of equilibrium prices in structural…

We prove the Fundamental Theorem of Asset Pricing for a discrete time financial market where trading is subject to proportional transaction cost and the asset price dynamic is modeled by a family of probability measures, possibly…

The research presented in this work is motivated by recent papers by Brigo et al. (2011), Burgard and Kjaer (2009), Cr\'epey (2012), Fujii and Takahashi (2010), Piterbarg (2010) and Pallavicini et al. (2012). Our goal is to provide a sound…

We generalize the results of Bielecki and Rutkowski (2015) on funding and collateralization to a multi-currency framework and link their results with those of Piterbarg (2012), Moreni and Pallavicini (2017), and Fujii et al. (2010b). In…

We explore credit risk pricing by modeling equity as a call option and debt as the difference between the firm's asset value and a put option, following the structural framework of the Merton model. Our approach proceeds in two stages:…

This paper analyzes the pricing of collateralized derivatives, i.e. contracts where counterparties are not only subject to financial derivatives cash flows but also to collateral cash flows arising from a collateral agreement. We do this…

A market model with $d$ assets in discrete time is considered where trades are subject to proportional transaction costs given via bid-ask spreads, while the existence of a num\`eraire is not assumed. It is shown that robust no arbitrage…

We reconsider the microeconomic foundations of financial economics. Motivated by the importance of Knightian Uncertainty in markets, we present a model that does not carry any probabilistic structure ex ante, yet is based on a common order.…

In this paper we provide a quantitative analysis to the concept of arbitrage, that allows to deal with model uncertainty without imposing the no-arbitrage condition. In markets that admit ``small arbitrage", we can still make sense of the…

We develop two alternate approaches to arbitrage-free, market-complete, option pricing. The first approach requires no riskless asset. We develop the general framework for this approach and illustrate it with two specific examples. The…

The general method is proposed for constructing a family of martingale measures for a wide class of evolution of risky assets. The sufficient conditions are formulated for the evolution of risky assets under which the family of equivalent…

In the accompanied paper [14], a delayed nonlinear model for pricing corporate liabilities was developed. Using self-financed strategy and duplication we were able to derive two Random Partial Differential Equations (RPDEs) describing the…

In this study, we consider the asset pricing under model uncertainty with discrete time and states structure. For the single-period securities model, we give a novel definition of arbitrage under a family of probability, and explore of its…