A Diffusion Approximation to the Markov Chains Model of the Financial Market and the Expected Riskless Profit Under Selling of Call and Put Options

Nagaev, Alexander V. and Nagaev, Sergej and Kunst, Robert M. (January 2005) A Diffusion Approximation to the Markov Chains Model of the Financial Market and the Expected Riskless Profit Under Selling of Call and Put Options. IHS Economics Series 165

[img]
Preview
Text
es-165.pdf

Download (277kB) | Preview

Abstract or Table of Contents

Abstract: A discrete time model of financial markets is considered. It is assumed that the stock price evolution is described by a homogeneous Markov chain. In the focus of attention is the expected value of the guaranteed profit of the investor that arises when the jumps of the stock price are bounded. The suggested diffusion approximation for the Markov chain allows establishing a convenient approximate formula for the studied characteristic.;

Item Type: IHS Series
Keywords: 'Ergodic and irreducible Markov chains' 'Stationary distribution' 'Local limit theorem' 'Upper hedge' 'Upper rational price'
Classification Codes (e.g. JEL): G12, G11, G13
Status: Published
Date Deposited: 26 Sep 2014 10:38
Last Modified: 22 Jul 2017 17:55
URI: http://irihs.ihs.ac.at/id/eprint/1612

Actions (login required)

View Item View Item