Aspects of Mathematical Finance by Marc Yor

By Marc Yor

This selection of essays relies on lectures given on the "Académie des Sciences" in Paris by means of across the world popular specialists in mathematical finance. the gathering develops, in uncomplicated but rigorous phrases, a few difficult themes comparable to hazard measures, the thought of arbitrage, dynamic types related to primary stochastic procedures like Brownian movement and Lévy methods. The ebook additionally contains a description of the trainings of French monetary analysts.

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6) Q∈QT Super-replication prices are often too expensive to be used in practice. However, they give an upper bound to the set of possible prices. We will develop the dual approach in Sect. 3, when looking at risk measures. The super-replication price is indeed very similar to the notion of convex risk measures, where the worst case is also considered. 2 Martingale Measures The idea of introducing a dual theory based on probability measures is first due to Bachelier [4] in 1900, even if it has been essentially developed by Harrison and Pliska [21].

Geman non-trading time. Geman and Schneeweis [29] argue that ‘the non-stationarity in asset return variance should be discussed in the context of calendar time and transaction time hypotheses’. French and Roll [23] conduct an empirical analysis of the impact of information on the difference between trading and non-trading time stock return variance. They conclude that information accumulates more slowly when the NYSE and AMEX are closed, resulting in higher volatility in these markets after weekends and holidays.

In order to price exotic options, one can build Monte–Carlo simulations of the stock process and avoid the hurdles created by the unobservable nature of volatility in stochastic volatility models. We have shown that by changing the probability measure (and the num´eraire in the economy) or changing the clock, asset price processes can be expressed as 50 H. Geman martingales or even Brownian motion. The martingale representation is immediately extended to contingent claims in the case of complete markets where there is a unique martingale measure for each chosen num´eraire.

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