Norberg, Ragnar (2003) The Markov chain market. ASTIN bulletin, 33 (2). pp. 265-287. ISSN 0515-0361
We consider a financial market driven by a continuous time homogeneous Markov chain. Conditions for absence of arbitrage and for completeness are spelled out, non-arbitrage pricing of derivatives is discussed, and details are worked out for some cases. Closed form expressions are obtained for interest rate derivatives. Computations typically amount to solving a set of first order partial differential equations. An excursion into risk minimization in the incomplete case illustrates the matrix techniques that are instrumental in the model.
|Additional Information:||© 2003 Peeters|
|Library of Congress subject classification:||H Social Sciences > HG Finance
Q Science > QA Mathematics
|Sets:||Departments > Statistics|
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