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Pricing of Derivatives on Mean-Reverting Assets
Bjorn Lutz
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Description for Pricing of Derivatives on Mean-Reverting Assets
Paperback. The topic of this book is the development of pricing formulae for European style derivatives on assets with mean-reverting behavior, especially commodity derivatives. Series: Lecture Notes in Economics and Mathematical Systems. Num Pages: 155 pages, 22 black & white illustrations, 2 black & white tables, biography. BIC Classification: KCBM; KFFK; PBW. Category: (P) Professional & Vocational. Dimension: 234 x 156 x 8. Weight in Grams: 510.
As already mentioned by Lo and Wang (1995) there is an apparent paradox if we derive standard option pricing formulae for an underlying mean-reverting drift. While the drift has an in?uence on the long-run behavior of the underlying, the option price becomes independent of the drift of the price process itself. Using the continuous-time pricing framework this leads to option prices which are much too large for more distant maturities. One possible solution for this paradox is the assumption that the market is incomplete. As shown by Ross (1997), in an inc- plete market the mean reversion remains in the ... Read more
As already mentioned by Lo and Wang (1995) there is an apparent paradox if we derive standard option pricing formulae for an underlying mean-reverting drift. While the drift has an in?uence on the long-run behavior of the underlying, the option price becomes independent of the drift of the price process itself. Using the continuous-time pricing framework this leads to option prices which are much too large for more distant maturities. One possible solution for this paradox is the assumption that the market is incomplete. As shown by Ross (1997), in an inc- plete market the mean reversion remains in the ... Read more
Product Details
Format
Paperback
Publication date
2009
Publisher
Springer-Verlag Berlin and Heidelberg GmbH & Co. KG Germany
Number of pages
155
Condition
New
Series
Lecture Notes in Economics and Mathematical Systems
Number of Pages
137
Place of Publication
Berlin, Germany
ISBN
9783642029080
SKU
V9783642029080
Shipping Time
Usually ships in 15 to 20 working days
Ref
99-15
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