Incomplete markets

In economics, incomplete markets are markets in which there does not exist an Arrow–Debreu security for every possible state of nature. In contrast with complete markets, this shortage of securities will likely restrict individuals from transferring the desired level of wealth among states. An Arrow security purchased or sold at date t is a contract promising to deliver one unit of income in one of the possible contingencies which can occur at date t + 1. If at each date-event there exists a complete set of such contracts, one for each contingency that can occur at the following date, individuals will trade these contracts in order to insure against future risks, targeting a desirable and budget feasible level of consumption in each state (i.e. consumption smoothing). In most set ups when these contracts are not available, optimal risk sharing between agents will not be possible. For this scenario, agents (homeowners, workers, firms, investors, etc.) will lack the instruments to insur

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Économie (discipline)

L'économie (ou économie politique, science économique) est une discipline qui étudie l'économie en tant qu'activité humaine, qui consiste en la production, la distribution, l'échange et la consommat

Équilibre général

L'équilibre général est un concept d'économie qui désigne la possibilité pour les marchés d'atteindre l'équilibre simultanément par le libre jeu de l'offre et de la demande. L'équilibre général se dis

Marché (économie)

Un marché est l'institution sociale abstraite où se rencontrent l'offre et la demande de biens ou de services. Le marché est ainsi le lieu, physique ou virtuel, où les échanges commerciaux ont lieu.

We propose a new method for pricing options based on GARCH models with filtered historical innovations. In an incomplete market framework, we allow for different distributions of historical and pricing return dynamics enhancing the model flexibility to fit market option prices. An extensive empirical analysis based on S&P 500 index options shows that our model outperforms other competing GARCH pricing models and ad hoc Black-Scholes models. We show that the flexible change of measure, the asymmetric GARCH volatility and the nonparametric innovation distribution induce the accurate pricing performance of our model. Using a nonparametric approach, we obtain decreasing state price densities per unit probability as suggested by economic theory and corroborating our GARCH pricing model. Implied volatility smiles appear to be explained by asymmetric volatility and negative skewness of filtered historical innovations.

2008

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Optimal investment with random endowments in incomplete markets

Julien Hugonnier

2004

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2005

Chargement

FIN-609: Asset Pricing

This course provides an overview of the theory of asset pricing and portfolio choice theory following historical developments in the field and putting emphasis on theoretical models that help our understanding of financial decision making and financial markets.

FIN-406: Macrofinance

This course provides students with a working knowledge of macroeconomic models that explicitly incorporate financial markets. The goal is to develop a broad and analytical framework for analyzing the interaction of financial decisions, macroeconomic events and policy decisions.

MATH-470: Martingales in financial mathematics

The aim of the course is to apply the theory of martingales in the context of mathematical finance. The course provides a detailed study of the mathematical ideas that are used in modern financial mathematics. Moreover, the concepts of complete and incomplete markets are discussed.