Related papers: A simplified Capital Asset Pricing Model
The limitations of the classical Black-Scholes model are examined by comparing calculated and actual historical prices of European call options on stocks from several sectors of the S&P 500. Persistent differences between the two prices…
Single index financial market models cannot account for the empirically observed complex interactions between shares in a market. We describe a multi-share financial market model and compare characteristics of the volatility, that is the…
The classical linear Black--Scholes model for pricing derivative securities is a popular model in financial industry. It relies on several restrictive assumptions such as completeness, and frictionless of the market as well as the…
An automated market maker where the price can cross the zero bound into the negative price domain with applications in electricity, energy, and derivatives markets is presented. A unique feature involves the ability to swap both negatively…
We consider asset price models whose dynamics are described by linear functions of the (time extended) signature of a primary underlying process, which can range from a (market-inferred) Brownian motion to a general multidimensional…
This study investigates enhancing option pricing by extending the Black-Scholes model to include stochastic volatility and interest rate variability within the Partial Differential Equation (PDE). The PDE is solved using the finite…
We investigate entropy as a financial risk measure. Entropy explains the equity premium of securities and portfolios in a simpler way and, at the same time, with higher explanatory power than the beta parameter of the capital asset pricing…
This paper presents a general framework for the design and analysis of exchange mechanisms between two assets that unifies and enables comparisons between the two dominant paradigms for exchange, constant function market markers (CFMMs) and…
Usually, in the Black-Scholes pricing theory the volatility is a positive real parameter. Here we explore what happens if it is allowed to be a complex number. The function for pricing a European option with a complex volatility has…
The importance of considering the volumes to analyze stock prices movements can be considered as a well-accepted practice in the financial area. However, when we look at the scientific production in this field, we still cannot find a…
A new mathematical model for the Black-Scholes equation is proposed to forecast option prices. This model includes new interval for the price of the underlying stock as well as new initial and boundary conditions. Conventional notions of…
The money market and the capital market of the Indian financial markets have a symbiotic relationship in the development of the Indian economy. The nature and the characteristics of the markets differ to a large extent as the money market…
A new model for stocks markets using integer values for each stock price is presented. In contrast with previously reported models, the variables used in the model are not of binary type, but of more general integer type. It is shown how…
By exploiting a bipartite network representation of the relationships between mutual funds and portfolio holdings, we propose an indicator that we derive from the analysis of the network, labelled the Average Commonality Coefficient (ACC),…
We investigate a statistical-static hedging technique for pricing assets considered as single-step stochastic cash flows. The valuation is based on constructing in a canonical way a European style derivative on a benchmark security such…
We consider the problem of minimizing capital at risk in the Black-Scholes setting. The portfolio problem is studied given the possibility that a correlation constraint between the portfolio and a financial index is imposed. The optimal…
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…
We show how to derive the Black-Scholes model and its generalisation to the `exchange-option' (to exchange one asset for another) via the continuum limit of the Binomial tree. No knowledge of stochastic calculus or partial differential…
In this paper we analyse the five-factor capital market model of Munk et al.(2004). The model features a Vasicek interest rate model, an equity index with mean-reverting excess return and an index for realized inflation with mean-reverting…
We introduce and study a simple model of a limit order-driven market. Traders in this model can either trade at the market price or place a limit order, i.e. an instruction to buy (sell) a certain amount of the stock if its price falls…