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36

 

Princeton University Press (Visit publisher website)

2001

English

 

 

 

Advanced

 

 

Market risk, quantitative analysis, modeling derivatives, estimation, transform analysis and saddlepoint approximation, derivative asset pricing, forward prices, cost-of-carry formula, futures price process, short position, delivery arbitrage, convergence, settlement, stochastic volatility, implied volatility, generalized autoregressive conditional heteroscedastic (GARCH) model, Heston model, transform analysis, American security valuation, American regularity condition, super-replicating trading strategy, American exercise boundaries, path-dependent options, lookback options, knock-out options, knock-in options, barrier options, Asian options

 

Excerpt from book - This chapter applies arbitrage-free pricing techniques from Chapters 6 and 7 to derivative securities that are not always easily treated by the direct PDE approach of Chapter 5. A derivative security is one whose cash flows are contingent on the prices of other securities, or on related indices. After summarizing the essential results from Chapter 6 for this purpose, we study the valuation of forwards, futures, European and American options, and certain exotic options. Option pricing with stochastic volatility is addressed with Fourier-transform methods.

 

A Martingale Measures in a Black Box
B Forward Prices
C Futures and Continuous Resettlement
D Arbitrage-Free Futures Prices
E Stochastic Volatility
F Option Valuation by Transform Analysis
G American Security Valuation
H American Exercise Boundaries
I Lookback Options
Exercises
Notes

 

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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 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. With this new edition, Dynamic Asset Pricing Theory remains at the head of the field.