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Forward And Futures Prices With Bubbles


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    (Johnson Graduate School of Management, Cornell University, Ithaca, NY 14853, USA; Kamakura Corporation, USA)


    (School of Operations Research, Cornell University, Ithaca, NY 14853-3801, USA)


This paper extends and refines the Jarrow et al. (2006, 2008) arbitrage free pricing theory for bubbles to characterize forward and futures prices. Some new insights are obtained in this regard. In particular, we: (i) provide a canonical process for asset price bubbles suitable for empirical estimation, (ii) discuss new methods to test empirically for asset price bubbles using both spot prices and call/put option prices on the spot commodity, (iii) show that futures prices can have bubbles independent of the underlying asset's price bubble, (iv) relate forward and futures prices under bubbles, and (v) relate price options on futures with asset price bubbles.

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Bibliographic Info

Article provided by World Scientific Publishing Co. Pte. Ltd. in its journal International Journal of Theoretical and Applied Finance.

Volume (Year): 12 (2009)
Issue (Month): 07 ()
Pages: 901-924

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Handle: RePEc:wsi:ijtafx:v:12:y:2009:i:07:p:901-924

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Keywords: Futures; forwards; speculative bubbles; stochastic interest rates; local martingale; inverse Bessel process;


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Cited by:
  1. Robert Jarrow & Philip Protter, 2011. "Foreign currency bubbles," Review of Derivatives Research, Springer, vol. 14(1), pages 67-83, April.
  2. Jarrow, Robert & Protter, Philip, 2012. "Discrete versus continuous time models: Local martingales and singular processes in asset pricing theory," Finance Research Letters, Elsevier, vol. 9(2), pages 58-62.
  3. Francesca Biagini & Hans Föllmer & Sorin Nedelcu, 2014. "Shifting martingale measures and the birth of a bubble as a submartingale," Finance and Stochastics, Springer, vol. 18(2), pages 297-326, April.
  4. Robert Jarrow, 2010. "Convenience yields," Review of Derivatives Research, Springer, vol. 13(1), pages 25-43, April.


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