A new market model in the large volatility case

Details A new market model in the large volatility case A new market model in the large volatility case

2008-03-11

arxiv.org/abs/0803.1589v1

Far East Journal of Applied Mathematics 32 (2008), 13-20.

Economy

Quantitative Finance

Pricing of Securities

5 pages

Scientific paper

We will compare three types of prices, namely, rational (hedging) prices,
geometric (growth rate) prices, and martingale (measure) prices. We will show
that rational prices in the complete market theory are sometimes contrary to
common sense. In the continuous-time case, we insist that the market model
should differ between the small volatility case and the large volatility case.

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