Towards a general theory of good-deal bounds
2006 (English)In: Review of Finance, ISSN 1382-6662, Vol. 10, no 2, 221-260 p.Article in journal (Refereed) Published
We consider an incomplete market in the form of a multidimensional Markovian factor model, driven by a general marked point process (representing discrete jump events), as well as by a standard multidimensional Wiener process. Within this framework, we study arbitrage-free good-deal pricing bounds for derivative assets, thereby extending the results by Cochrane and Saá Requejo (2000) to the point process case, while, at the same time, obtaining a radical simplification of the theory. To illustrate, we present numerical results for the classic Merton jump-diffusion model. As a by-product of the general theory, we derive extended Hansen-Jagannathan bounds for the Sharpe Ratio process in the point process setting.
Place, publisher, year, edition, pages
2006. Vol. 10, no 2, 221-260 p.
Economics and Business Mathematics
IdentifiersURN: urn:nbn:se:kth:diva-86562DOI: 10.1007/s10679-006-8279-1OAI: oai:DiVA.org:kth-86562DiVA: diva2:500846
QC 201203132012-02-132012-02-132012-03-13Bibliographically approved