The Economics of Continuous Time Finance

The Economics of Continuous Time Finance

This book introduces the economic applications of the theory of continuous-time finance, with the goal of enabling the construction of realistic models, particularly those involving incomplete markets.

Author: Bernard Dumas

Publisher: MIT Press

ISBN: 9780262036542

Category: Business & Economics

Page: 640

View: 307

An introduction to economic applications of the theory of continuous-time finance that strikes a balance between mathematical rigor and economic interpretation of financial market regularities. This book introduces the economic applications of the theory of continuous-time finance, with the goal of enabling the construction of realistic models, particularly those involving incomplete markets. Indeed, most recent applications of continuous-time finance aim to capture the imperfections and dysfunctions of financial markets—characteristics that became especially apparent during the market turmoil that started in 2008. The book begins by using discrete time to illustrate the basic mechanisms and introduce such notions as completeness, redundant pricing, and no arbitrage. It develops the continuous-time analog of those mechanisms and introduces the powerful tools of stochastic calculus. Going beyond other textbooks, the book then focuses on the study of markets in which some form of incompleteness, volatility, heterogeneity, friction, or behavioral subtlety arises. After presenting solutions methods for control problems and related partial differential equations, the text examines portfolio optimization and equilibrium in incomplete markets, interest rate and fixed-income modeling, and stochastic volatility. Finally, it presents models where investors form different beliefs or suffer frictions, form habits, or have recursive utilities, studying the effects not only on optimal portfolio choices but also on equilibrium, or the price of primitive securities. The book strikes a balance between mathematical rigor and the need for economic interpretation of financial market regularities, although with an emphasis on the latter.
Categories: Business & Economics

Continuous Time Finance

Continuous Time Finance

For this revised edition a new section on managing university endowments has been added. The book begins with a foreword by Paul Samuelson.

Author: Robert C. Merton

Publisher: Wiley-Blackwell

ISBN: 0631185089

Category: Business & Economics

Page: 754

View: 204

Robert C. Merton's widely-used text provides an overview and synthesis of finance theory from the perspective of continuous-time analysis. It covers individual finance choice, corporate finance, financial intermediation, capital markets, and selected topics on the interface between private and public finance.
Categories: Business & Economics

Financial Markets in Continuous Time

Financial Markets in Continuous Time

This approach has its roots in the foundational work on General Equilibrium of the Nobel laureates Arrow and Debreu and in the work of McKenzie. This book has four parts.

Author: Rose-Anne Dana

Publisher: Springer Science & Business Media

ISBN: 9783540711506

Category: Mathematics

Page: 324

View: 947

This book explains key financial concepts, mathematical tools and theories of mathematical finance. It is organized in four parts. The first brings together a number of results from discrete-time models. The second develops stochastic continuous-time models for the valuation of financial assets (the Black-Scholes formula and its extensions), for optimal portfolio and consumption choice, and for obtaining the yield curve and pricing interest rate products. The third part recalls some concepts and results of equilibrium theory and applies this in financial markets. The last part tackles market incompleteness and the valuation of exotic options.
Categories: Mathematics

Stochastic Calculus for Finance I

Stochastic Calculus for Finance I

This book is being published in two volumes. The first volume presents the binomial asset-pricing model primarily as a vehicle for introducing in the simple setting the concepts needed for the continuous-time theory in the second volume.

Author: Steven Shreve

Publisher: Springer Science & Business Media

ISBN: 0387249680

Category: Mathematics

Page: 187

View: 295

Developed for the professional Master's program in Computational Finance at Carnegie Mellon, the leading financial engineering program in the U.S. Has been tested in the classroom and revised over a period of several years Exercises conclude every chapter; some of these extend the theory while others are drawn from practical problems in quantitative finance
Categories: Mathematics

Arbitrage Theory in Continuous Time

Arbitrage Theory in Continuous Time

The third edition of this popular introduction to the classical underpinnings of the mathematics behind finance continues to combine sound mathematical principles with economic applications.

Author: Tomas Björk

Publisher: OUP Oxford

ISBN: 9780191610295

Category: Business & Economics

Page: 560

View: 384

The third edition of this popular introduction to the classical underpinnings of the mathematics behind finance continues to combine sound mathematical principles with economic applications. Concentrating on the probabilistic theory of continuous arbitrage pricing of financial derivatives, including stochastic optimal control theory and Merton's fund separation theory, the book is designed for graduate students and combines necessary mathematical background with a solid economic focus. It includes a solved example for every new technique presented, contains numerous exercises, and suggests further reading in each chapter. In this substantially extended new edition Bjork has added separate and complete chapters on the martingale approach to optimal investment problems, optimal stopping theory with applications to American options, and positive interest models and their connection to potential theory and stochastic discount factors. More advanced areas of study are clearly marked to help students and teachers use the book as it suits their needs.
Categories: Business & Economics

Continuous Time Approach to Financial Volatility

Continuous Time Approach to Financial Volatility

The idea of this book is to explain how Levy processes can be used to study some problems in finance.

Author: Ole E. Barndorff-Nielsen

Publisher:

ISBN: 0521834406

Category: Business & Economics

Page: 400

View: 262

The idea of this book is to explain how Levy processes can be used to study some problems in finance. The necessary technology is motivated and justified in an opening chapter, and is then followed by chapters explaining the mathematics and computational aspects of the subject. The heart of the book describes applications, with further mathematical ideas introduced as and when needed. The authors cover new ideas not presented in book form before, blending theory and practice, and this account will be of value to all those working in mathematical finance, financial econometrics, probability and statistics."
Categories: Business & Economics

Financial Pricing Models in Continuous Time and Kalman Filtering

Financial Pricing Models in Continuous Time and Kalman Filtering

Beside the fact that these three models can be treated independently, the book as a whole gives the interested reader a comprehensive account of the requirements and capabilities of the Kalman filter applied to finance models.

Author: B.Philipp Kellerhals

Publisher: Springer Science & Business Media

ISBN: 9783662219010

Category: Business & Economics

Page: 250

View: 431

Straight after its invention in the early sixties, the Kalman filter approach became part of the astronautical guidance system of the Apollo project and therefore received immediate acceptance in the field of electrical engineer ing. This sounds similar to the well known success story of the Black-Scholes model in finance, which has been implemented by the Chicago Board of Op tions Exchange (CBOE) within a few month after its publication in 1973. Recently, the Kalman filter approach has been discovered as a comfortable estimation tool in continuous time finance, bringing together seemingly un related methods from different fields. Dr. B. Philipp Kellerhals contributes to this topic in several respects. Specialized versions of the Kalman filter are developed and implemented for three different continuous time pricing models: A pricing model for closed-end funds, taking advantage from the fact, that the net asset value is observable, a term structure model, where the market price of risk itself is a stochastic variable, and a model for electricity forwards, where the volatility of the price process is stochastic. Beside the fact that these three models can be treated independently, the book as a whole gives the interested reader a comprehensive account of the requirements and capabilities of the Kalman filter applied to finance models. While the first model uses a linear version of the filter, the second model using LIBOR and swap market data requires an extended Kalman filter. Finally, the third model leads to a non-linear transition equation of the filter algorithm.
Categories: Business & Economics

Continuous Time Models in Corporate Finance Banking and Insurance

Continuous Time Models in Corporate Finance  Banking  and Insurance

The book concludes by presenting the dynamic agency model, where financial frictions stem from the lack of interest alignment between a firm's manager and its financiers.

Author: Santiago Moreno-Bromberg

Publisher: Princeton University Press

ISBN: 9781400889204

Category: Business & Economics

Page: 176

View: 171

Continuous-Time Models in Corporate Finance synthesizes four decades of research to show how stochastic calculus can be used in corporate finance. Combining mathematical rigor with economic intuition, Santiago Moreno-Bromberg and Jean-Charles Rochet analyze corporate decisions such as dividend distribution, the issuance of securities, and capital structure and default. They pay particular attention to financial intermediaries, including banks and insurance companies. The authors begin by recalling the ways that option-pricing techniques can be employed for the pricing of corporate debt and equity. They then present the dynamic model of the trade-off between taxes and bankruptcy costs and derive implications for optimal capital structure. The core chapter introduces the workhorse liquidity-management model—where liquidity and risk management decisions are made in order to minimize the costs of external finance. This model is used to study corporate finance decisions and specific features of banks and insurance companies. The book concludes by presenting the dynamic agency model, where financial frictions stem from the lack of interest alignment between a firm's manager and its financiers. The appendix contains an overview of the main mathematical tools used throughout the book. Requiring some familiarity with stochastic calculus methods, Continuous-Time Models in Corporate Finance will be useful for students, researchers, and professionals who want to develop dynamic models of firms' financial decisions.
Categories: Business & Economics

Incomplete Information and Heterogeneous Beliefs in Continuous time Finance

Incomplete Information and Heterogeneous Beliefs in Continuous time Finance

Federal Reserve Finance and Economics Discussion Series No. 1999-47 ...
Princeton University Press, Princeton NJ Duffie, D., Sun, T.-S. (1990): Transaction
Costs and Portfolio Choice in a Discrete-Continuous Time Setting. Journal of ...

Author: Alexandre C. Ziegler

Publisher: Springer Science & Business Media

ISBN: 9783540247555

Category: Business & Economics

Page: 198

View: 892

After a brief review of the existing incomplete information literature, the effect of incomplete information on investors' exptected utility, risky asset prices, and interest rates is described. It is demonstrated that increasing the quality of investors' information need not increase their expected utility and the prices of risky assets. The impact of other factors is discussed in detail. It is also demonstrated that financial markets in general do not aggregate information efficiently, a fact that can explain the equity premium puzzle.
Categories: Business & Economics

Continuous time methods in finance

Continuous time methods in finance

Mella-Barral P. and W. R. M. Perraudin, (1997), "Strategic Debt Service," Journal
of Finance, Vol. 52, No. 2. 531-556. Merton, Robert C., (1969), "Lifetime Portfolio
Selection Under Uncertainty: the Continuous Time Case", Review of Economics ...

Author: Suresh M. Sundaresan

Publisher:

ISBN: UCLA:L0082297052

Category: Derivative securities

Page: 101

View: 886

Categories: Derivative securities

Contract Theory in Continuous Time Models

Contract Theory in Continuous Time Models

In recent years there has been a significant increase of interest in continuous-time Principal-Agent models, or contract theory, and their applications.

Author: Jakša Cvitanic

Publisher: Springer Science & Business Media

ISBN: 9783642142000

Category: Mathematics

Page: 256

View: 329

In recent years there has been a significant increase of interest in continuous-time Principal-Agent models, or contract theory, and their applications. Continuous-time models provide a powerful and elegant framework for solving stochastic optimization problems of finding the optimal contracts between two parties, under various assumptions on the information they have access to, and the effect they have on the underlying "profit/loss" values. This monograph surveys recent results of the theory in a systematic way, using the approach of the so-called Stochastic Maximum Principle, in models driven by Brownian Motion. Optimal contracts are characterized via a system of Forward-Backward Stochastic Differential Equations. In a number of interesting special cases these can be solved explicitly, enabling derivation of many qualitative economic conclusions.
Categories: Mathematics

Continuous Time Asset Pricing Theory

Continuous Time Asset Pricing Theory

Yielding new insights into important market phenomena like asset price bubbles and trading constraints, this is the first textbook to present asset pricing theory using the martingale approach (and all of its extensions).

Author: Robert A. Jarrow

Publisher: Springer

ISBN: 9783319778211

Category: Mathematics

Page: 448

View: 663

Yielding new insights into important market phenomena like asset price bubbles and trading constraints, this is the first textbook to present asset pricing theory using the martingale approach (and all of its extensions). Since the 1970s asset pricing theory has been studied, refined, and extended, and many different approaches can be used to present this material. Existing PhD–level books on this topic are aimed at either economics and business school students or mathematics students. While the first mostly ignore much of the research done in mathematical finance, the second emphasizes mathematical finance but does not focus on the topics of most relevance to economics and business school students. These topics are derivatives pricing and hedging (the Black–Scholes–Merton, the Heath–Jarrow–Morton, and the reduced-form credit risk models), multiple-factor models, characterizing systematic risk, portfolio optimization, market efficiency, and equilibrium (capital asset and consumption) pricing models. This book fills this gap, presenting the relevant topics from mathematical finance, but aimed at Economics and Business School students with strong mathematical backgrounds.
Categories: Mathematics

The Nobel Prizes 1997

The Nobel Prizes 1997

Option Pricing When Underlying Stock Returns are Discontinuous , ” Journal of
Financial Economics , 3 , January - February 1976 . Chapter 9 in
ContinuousTime Finance . “ Theory of Finance From the Perspective of
Continuous Time ...

Author: Tore Frängsmyr

Publisher:

ISBN: 918584828X

Category: Reference

Page: 502

View: 997

Categories: Reference

Finance India

Finance India

Author:

Publisher:

ISBN: IND:30000117323711

Category: Finance

Page:

View: 913

Categories: Finance

Financial Asset Pricing Theory

Financial Asset Pricing Theory

The book presents models for the pricing of financial assets such as stocks, bonds, and options.

Author: Claus Munk

Publisher: Oxford University Press

ISBN: 9780199585496

Category: Business & Economics

Page: 585

View: 819

The book presents models for the pricing of financial assets such as stocks, bonds, and options. The models are formulated and analyzed using concepts and techniques from mathematics and probability theory. It presents important classic models and some recent 'state-of-the-art' models that outperform the classics.
Categories: Business & Economics

Financial Economics Risk And Information 2nd Edition

Financial Economics  Risk And Information  2nd Edition

The objective of this book is to introduce undergraduate and first-year graduate students to the methods and solutions of the main problems in finance theory relating to the economics of uncertainty and information.

Author: Bianconi Marcelo

Publisher: World Scientific Publishing Company

ISBN: 9789814405126

Category: Business & Economics

Page: 496

View: 353

Financial Economics, Risk and Information presents the fundamentals of finance in static and dynamic frameworks with focus on risk and information. The objective of this book is to introduce undergraduate and first-year graduate students to the methods and solutions of the main problems in finance theory relating to the economics of uncertainty and information. The main goal of the second edition is to make the materials more accessible to a wider audience of students and finance professionals. The focus is on developing a core body of theory that will provide the student with a solid intellectual foundation for more advanced topics and methods. The new edition has streamlined chapters and topics, with new sections on portfolio choice under alternative information structures. The starting point is the traditional mean-variance approach, followed by portfolio choice from first principles. The topics are extended to alternative market structures, alternative contractual arrangements and agency, dynamic stochastic general equilibrium in discrete and continuous time, attitudes towards risk and towards inter-temporal substitution in discrete and continuous time; and option pricing. In general, the book presents a balanced introduction to the use of stochastic methods in discrete and continuous time in the field of financial economics.
Categories: Business & Economics

Stochastic Optimization in Continuous Time

Stochastic Optimization in Continuous Time

First published in 2004, this is a rigorous but user-friendly book on the application of stochastic control theory to economics.

Author: Fwu-Ranq Chang

Publisher: Cambridge University Press

ISBN: 1139452223

Category: Business & Economics

Page: 326

View: 335

First published in 2004, this is a rigorous but user-friendly book on the application of stochastic control theory to economics. A distinctive feature of the book is that mathematical concepts are introduced in a language and terminology familiar to graduate students of economics. The standard topics of many mathematics, economics and finance books are illustrated with real examples documented in the economic literature. Moreover, the book emphasises the dos and don'ts of stochastic calculus, cautioning the reader that certain results and intuitions cherished by many economists do not extend to stochastic models. A special chapter (Chapter 5) is devoted to exploring various methods of finding a closed-form representation of the value function of a stochastic control problem, which is essential for ascertaining the optimal policy functions. The book also includes many practice exercises for the reader. Notes and suggested readings are provided at the end of each chapter for more references and possible extensions.
Categories: Business & Economics

Stochastic Volatility in Financial Markets

Stochastic Volatility in Financial Markets

Presenting advanced topics in financial econometrics and theoretical finance, this guide is divided into three main parts.

Author: Fabio Fornari

Publisher: Springer Science & Business Media

ISBN: 0792378423

Category: Business & Economics

Page: 145

View: 687

Presenting advanced topics in financial econometrics and theoretical finance, this guide is divided into three main parts.
Categories: Business & Economics

Modern Risk Management

Modern Risk Management

373–413 ; reprinted in R. Merton , 1990 , Continuous - Time Finance , Chapter 5 ,
pp . 120-65 ( Cambridge , MA , Basil Blackwell ) . Merton , R. C. , 1973a , " Theory
of Rational Option Pricing " , Bell Journal Economics and Management ...

Author: Peter Field

Publisher:

ISBN: UCSD:31822031193402

Category: Gestion du risque

Page: 611

View: 110

Uniting the most eminent names within the risk industry, this commemorative title chronicles the major historical developments within the derivatives industry whilst presenting a wealth of new insights, perspectives and case-studies on assorted risk management issues.
Categories: Gestion du risque

Pioneers of Financial Economics Twentieth century contributions

Pioneers of Financial Economics  Twentieth century contributions

Reprinted in Merton , R . C . ( 1992 ) , Continuous Time Finance , Oxford : Basil
Blackwell , Ch . 11 , pp . 358 - 67 . Merton , R . C . ( 1971 ) , ' Optimum
consumption and portfolio rules in a continuous - time model ' , Journal of
Economic Theory ...

Author: Geoffrey Poitras

Publisher: Edward Elgar Pub

ISBN: STANFORD:36105129795105

Category: Business & Economics

Page: 244

View: 562

This second and final book in the exploration of the pioneers of financial economics examines the development of the discipline during the twentieth century. Specially commissioned essays discuss scholars from the early part of the century to the Nobel Prize winners of the last decade including: Irving Fisher, Frederick Macaulay, Harry Markowitz and Fischer Black. Discussions of less familiar, though no less important, historical figures are also included.The essays situate the emergence of modern financial economics - commonly referred to as modern finance - within the broader context of the intellectual development of economic science. The book begins by exploring contributions from the early part of the century. Succeeding chapters present the views of modern finance insiders and consider alternative perspectives, with sociological interpretations of the rise of modern financial economics. An outstanding volume of original analysis, Pioneers of Financial Economics: Volume 2 is an essential reference source of seminal contributions on the history of financial economics.Students and scholars of finance, economics, sociology and intellectual history will find this comprehensive volume an invaluable addition to their library. The relatively non-technical nature of the book makes it accessible to professionals in the fields of finance and economics.
Categories: Business & Economics