Download e-book for kindle: The Interval Market Model in Mathematical Finance: by Pierre Bernhard, Jacob C. Engwerda, Berend Roorda, J.M.

By Pierre Bernhard, Jacob C. Engwerda, Berend Roorda, J.M. Schumacher, Vassili Kolokoltsov, Patrick Saint-Pierre, Jean-Pierre Aubin

ISBN-10: 0817683879

ISBN-13: 9780817683870

ISBN-10: 0817683887

ISBN-13: 9780817683887

Toward the overdue Nineties, numerous learn teams independently started constructing new, similar theories in mathematical finance. those theories did away with the normal stochastic geometric diffusion “Samuelson” industry version (also often called the Black-Scholes version since it is utilized in that almost all well-known theory), as an alternative identifying types that allowed minimax techniques to enrich or substitute stochastic equipment. one of the so much fruitful versions have been these using game-theoretic instruments and the so-called period industry version. through the years, those types have slowly yet progressively won effect within the monetary group, delivering an invaluable substitute to classical methods.

A self-contained monograph, The period marketplace version in Mathematical Finance: Game-Theoretic Methods assembles essentially the most very important effects, outdated and new, during this zone of analysis. Written via seven of the main favorite pioneers of the period marketplace version and game-theoretic finance, the paintings presents an in depth account of a number of heavily comparable modeling thoughts for an array of difficulties in mathematical economics. The publication is split into 5 elements, which successively handle issues including:

· probability-free Black-Scholes theory;

· fair-price period of an option;

· illustration formulation and quickly algorithms for alternative pricing;

· rainbow options;

· tychastic technique of mathematical finance dependent upon viability theory.

This e-book offers a welcome boost to the literature, complementing myriad titles out there that take a classical method of mathematical finance. it's a valuable source for researchers in utilized arithmetic and quantitative finance, and has additionally been written in a way obtainable to financially-inclined readers with a constrained technical background.

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Extra info for The Interval Market Model in Mathematical Finance: Game-Theoretic Methods

Example text

Compared to the continuous-time modeling framework of Black, Scholes, and Merton, we recall from Sect. 4 that the continuous time models postulate a lognormal distribution for future prices. That is, with t0 = 0, ln S(t) S0 ∼N t μ− σ2 2 √ ,σ t . 44 3 Introduction The stepwise comparison with interval models is straightforward. 10) according to the interval model, while the continuous-time model postulates ln S1 S0 ∼N μ− σ2 ,σ . 11) The first statement is nondeterministic, though it may be interpreted in a stochastic / [ln(d), ln(u)]} and their complements in R, and probability sense, with σ -field {0, one assigned to the interval.

1 For a more extensive treatment of this subject, we refer the reader to, for example, Hull [88, Chap. 12]. Consider a market with a single underlying asset. Assume a discrete-time setting where time points are indicated by t j , j = 0, 1, 2, . .. The price of the asset at time t j will be denoted by S j . An asset price path is a sequence S = {S0, . . , SN }, where the initial price S0 is fixed throughout and tN represents the time horizon, which is also assumed to be fixed. The binomial tree model Bu,d consists of all price paths that just allow one specific upward and downward price movement at any point in time: Bu,d := {S | S j+1 ∈ {d j S j , u j S j } for j = 0, 1, .

6) Given some initial value S for the underlying asset, a price f for a European derivative with payoff function F is said to be a fair price within the model M if for all strategies g there are paths S1 and S2 in M such that Qg (F, S1 ) ≤ f ≤ Qg (F, S2 ). 2 Fair Price Intervals in Interval Models 47 For any given subset I of R, let co I denote the smallest convex subset of R containing I. 8) where the intersection takes place over all strategies. 8) is an interval, which could reduce to a single point.

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The Interval Market Model in Mathematical Finance: Game-Theoretic Methods by Pierre Bernhard, Jacob C. Engwerda, Berend Roorda, J.M. Schumacher, Vassili Kolokoltsov, Patrick Saint-Pierre, Jean-Pierre Aubin


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