Change search
CiteExportLink to record
Permanent link

Direct link
Cite
Citation style
  • apa
  • harvard1
  • ieee
  • modern-language-association-8th-edition
  • vancouver
  • Other style
More styles
Language
  • de-DE
  • en-GB
  • en-US
  • fi-FI
  • nn-NO
  • nn-NB
  • sv-SE
  • Other locale
More languages
Output format
  • html
  • text
  • asciidoc
  • rtf
Growth optimal investment and pricing of derivatives
Show others and affiliations
2000 (English)In: Physica A: Statistical Mechanics and its Applications, ISSN 0378-4371, E-ISSN 1873-2119, Vol. 280, no 04-mar, 505-521 p.Article in journal (Refereed) Published
Abstract [en]

We introduce a criterion how to price derivatives in incomplete markets, based on the theory of growth optimal strategy in repeated multiplicative games. We present reasons why these growth-optimal strategies should be particularly relevant to the problem of pricing derivatives. tinder the assumptions of no trading costs, and no restrictions on lending, we find an appropriate equivalent martingale measure that prices the underlying and the derivative security. We compare our result with other alternative pricing procedures in the literature, and discuss the limits of validity of the lognormal approximation. We also generalize the pricing method to a market with correlated stocks. The expected estimation error of the optimal investment fraction is derived in a closed form, and its validity is checked with a small-scale empirical test.

Place, publisher, year, edition, pages
2000. Vol. 280, no 04-mar, 505-521 p.
Keyword [en]
option
Identifiers
URN: urn:nbn:se:kth:diva-19767ISI: 000087096300022OAI: oai:DiVA.org:kth-19767DiVA: diva2:338459
Note
QC 20100525Available from: 2010-08-10 Created: 2010-08-10 Last updated: 2017-12-12Bibliographically approved

Open Access in DiVA

No full text

Search in DiVA

By author/editor
Aurell, Erik
In the same journal
Physica A: Statistical Mechanics and its Applications

Search outside of DiVA

GoogleGoogle Scholar

urn-nbn

Altmetric score

urn-nbn
Total: 38 hits
CiteExportLink to record
Permanent link

Direct link
Cite
Citation style
  • apa
  • harvard1
  • ieee
  • modern-language-association-8th-edition
  • vancouver
  • Other style
More styles
Language
  • de-DE
  • en-GB
  • en-US
  • fi-FI
  • nn-NO
  • nn-NB
  • sv-SE
  • Other locale
More languages
Output format
  • html
  • text
  • asciidoc
  • rtf