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Author: P. Glabadanidis Publisher: Springer ISBN: 1137372877 Category : Business & Economics Languages : en Pages : 154
Book Description
Absence of Arbitrage Valuation presents a unified asset pricing strategy through absence of arbitrage and applies this framework to such disparate fields as fixed income security pricing, foreign exchange spots, and forward rates.
Author: P. Glabadanidis Publisher: Springer ISBN: 1137372877 Category : Business & Economics Languages : en Pages : 154
Book Description
Absence of Arbitrage Valuation presents a unified asset pricing strategy through absence of arbitrage and applies this framework to such disparate fields as fixed income security pricing, foreign exchange spots, and forward rates.
Author: Christian Koch Publisher: GRIN Verlag ISBN: 3640277856 Category : Business & Economics Languages : en Pages : 81
Book Description
Diploma Thesis from the year 1996 in the subject Business economics - Banking, Stock Exchanges, Insurance, Accounting, grade: 1,3, European Business School - International University Schlo Reichartshausen Oestrich-Winkel, 160 entries in the bibliography, language: English, abstract: A "few surprises" could be the trivial answer of the Arbitrage Pricing Theory if asked for the major determinants of stock returns. The APT was developed as a traceable framework of the main principles of capital asset pricing in financial markets. It investigates the causes underlying one of the most important fields in financial economics, namely the relationship between risk and return. The APT provides a thorough understanding of the nature and origins of risk inherent in financial assets and how capital markets reward an investor for bearing risk. Its fundamental intuition is the absence of arbitrage which is, indeed, central to finance and which has been used in virtually all areas of financial study. Since its introduction two decades ago, the APT has been subject to extensive theoretical as well as empirical research. By now, the arbitrage theory is well established in both respects and has enlightened our perception of capital markets. This paper aims to present the APT as an appropriate instrument of capital asset pricing and to link its principles to the valuation of risky income streams. The objective is also to provide an overview of the state of art of APT in the context of alternative capital market theories. For this purpose, Section 2 describes the basic concepts of the traditional asset pricing model, the CAPM, and indicates differences to arbitrage theory. Section 3 constitutes the main part of this paper introducing a derivation of the APT. Emphasis is laid on principles rather than on rigorous proof. The intuition of the pricing formula and its consistency with the state space preference theory are discussed. Important contributions to the APT are classified and br
Author: Manfred Steiner Publisher: ISBN: Category : Languages : en Pages : 47
Book Description
Arbitrage pricing plays an important role in asset valuation. The most applications of arbitrage asset pricing theories are based on the law of one price or asymptotic arbitrage free markets. We provide some new results on arbitrage and especially the arbitrage pricing theory by distinguishing between the absence of arbitrage, the law of one price and the absence of riskless arbitrage. Then we find the implications of these conditions for arbitrage asset pricing. Since the three concepts of the absence of arbitrage imply that the linear functionals that give the mean and the cost of a portfolio are continuous, hence there exist unique portfolios that represent these functionals. We detect a positive distance between these portfolios and therefore between the functionals. Thus the law of one price and the absence of a riskless arbitrage opportunity lead to systematic mispricing if both the contingent claims and the assets are mispriced. The beta pricing literature usually makes strong assumptions to obtain exact asset pricing. This belongs to a debate over which factors have the best theoretical or empirical justification. In the light of our results it is more advisable to acknowledge that almost only approximate arbitrage asset pricing can be obtained. The introduction of risky arbitrage opportunities in the sense that there might be an arbitrage opportunity with positive probability but not with probability one requires the knowledge of the risk aversion of investors. Therefore exact asset pricing can only be obtained by equilibrium asset pricing models. Our results generalizes to other arbitrage asset pricing theories like the Black and Scholes option valuation model and even the Modigliani-Miller Theorem.
Author: Stephen A. Ross Publisher: Princeton University Press ISBN: 1400830206 Category : Business & Economics Languages : en Pages : 120
Book Description
Neoclassical Finance provides a concise and powerful account of the underlying principles of modern finance, drawing on a generation of theoretical and empirical advances in the field. Stephen Ross developed the no arbitrage principle, tying asset pricing to the simple proposition that there are no free lunches in financial markets, and jointly with John Cox he developed the related concept of risk-neutral pricing. In this book Ross makes a strong case that these concepts are the fundamental pillars of modern finance and, in particular, of market efficiency. In an efficient market prices reflect the information possessed by the market and, as a consequence, trading schemes using commonly available information to beat the market are doomed to fail. By stark contrast, the currently popular stance offered by behavioral finance, fueled by a number of apparent anomalies in the financial markets, regards market prices as subject to the psychological whims of investors. But without any appeal to psychology, Ross shows that neoclassical theory provides a simple and rich explanation that resolves many of the anomalies on which behavioral finance has been fixated. Based on the inaugural Princeton Lectures in Finance, sponsored by the Bendheim Center for Finance of Princeton University, this elegant book represents a major contribution to the ongoing debate on market efficiency, and serves as a useful primer on the fundamentals of finance for both scholars and practitioners.
Author: Jianping Mei Publisher: World Scientific ISBN: 9814501808 Category : Business & Economics Languages : en Pages : 132
Book Description
This book consists of two essays on new approaches for the Arbitrage Pricing Theory and the Present Value Model, and one essay on cross-sectional correlations in panel data. The new approaches are designed to study a large number of securities over time. They can be employed by security analysts to discover market anomalies without assuming observable factors or constant risk premium. The book shows how these two approaches can be used to determine how many systematic factors affect the U.S. stock market.
Book Description
Arbitrage opportunities can be loosely defined as oportnities to make riskless profits on an arbitrarily large scale. Arbitrage concept is the basic technique of analysis in various models in modem finance theory including the Modigliani and Miller's work on the financial structure of the firm and the Black and Scholes Option Pricing Model. In this work, the implications of the absence of arbitrage in a two period security-spot market economy where security pricing operators are non-linear are studied. Non-linear asset pricing is a basic issue in finance that may arise from market frictions like transaction costs. Starting from a formulation of an abstract economy , a review of the established theory of arbitrage is made. Equilibrium concepts for economies in the senses of Arrow-Debreu and Radner are given. The no arbitrage condition is then extended to these economies through the equivalence between Arrow-Debreu and Radner equilibrium allocations. The arbitrage analysis for the Radner economy is generalised to an infinite dimensional case by introducing relevant mathematical techniques. Later, the two period security-spot market economy is modified by allowing the security pricing operators to be non-linear to account for various kind of market frictions. Specifically , this is done by removing the linearity assumption on the asset pricing operator while retaining the linear space assumption for its domain. A geometric visualisation of the set of income transfers for such an economy is constructed. It is seen that the assumption that there are no arbitrage opportunities has different implications for frictional markets as characterised by non-linear asset pricing operators and for frictionless markets.Introduction of non-linearity is seen to induce various phenomena that are not seen in canonical security-spot market economies like the presence of limited arbitrage opportunities.
Author: Sudipto Bhattacharya Publisher: World Scientific ISBN: 9812563741 Category : Business & Economics Languages : en Pages : 387
Book Description
The first edition of Theory of Valuation is a collection of important papers in the field of theoretical financial economics published from 1973 to 1986, and original accompanying essays contributed by eminent researchers including Robert C Merton, Edward C Prescott, Stephen A Ross, and Joseph E Stiglitz.Since then, with the perspective of major theoretical strides in the field, the book has more than fulfilled its original expectations. The realization that it remains today a compendium of classic articles and a must-read for any serious student in theoretical financial economics, has prompted the publication of a new edition.This second edition presents a summary statement of significant research in theoretical financial economics for both the specialist and non-specialist financial economist. It also provides material for PhD-level courses covering valuation theory, and elective reading for advanced Master's and undergraduate courses.In addition to reproducing the original contributions, this edition includes the seminal paper by Edward C Prescott and Rajnish Mehra, ?Recursive Competitive Equilibrium: The Case of Homogeneous Households,? originally published in Econometrica in 1980.
Author: Darrell Duffie Publisher: Princeton University Press ISBN: 1400829208 Category : Business & Economics Languages : en Pages : 488
Book Description
This is a thoroughly updated edition of Dynamic Asset Pricing Theory, the standard text for doctoral students and researchers on the theory of asset pricing and portfolio selection in multiperiod settings under uncertainty. The asset pricing results are based on the three increasingly restrictive assumptions: absence of arbitrage, single-agent optimality, and equilibrium. These results are unified with two key concepts, state prices and martingales. Technicalities are given relatively little emphasis, so as to draw connections between these concepts and to make plain the similarities between discrete and continuous-time models. Readers will be particularly intrigued by this latest edition's most significant new feature: a chapter on corporate securities that offers alternative approaches to the valuation of corporate debt. Also, while much of the continuous-time portion of the theory is based on Brownian motion, this third edition introduces jumps--for example, those associated with Poisson arrivals--in order to accommodate surprise events such as bond defaults. Applications include term-structure models, derivative valuation, and hedging methods. Numerical methods covered include Monte Carlo simulation and finite-difference solutions for partial differential equations. Each chapter provides extensive problem exercises and notes to the literature. A system of appendixes reviews the necessary mathematical concepts. And references have been updated throughout. With this new edition, Dynamic Asset Pricing Theory remains at the head of the field.
Author: Tomas Björk Publisher: ISBN: 0191525103 Category : Arbitrage Languages : en Pages : 325
Book Description
This text provides an accessible introduction to the classical mathematical underpinnings of modern finance. Professor Bjork concentrates on the probabilistic theory of continuous arbitrage pricing of financial derivatives.
Author: P. Glabadanidis
Author: P. Glabadanidis
Author: Christian Koch
Author: Manfred Steiner
Author: Stephen A. Ross
Author: Robert A. Jarrow
Author: Jianping Mei
Author: Tuncay Pekin
Author: Sudipto Bhattacharya
Author: Darrell Duffie
Author: Tomas Björk