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The pricing of financial assets in the physical world of finance

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  • Rodolfo Apreda

Abstract

The pricing of financial assets, this paper contends, it does not consist only in assessing a technical value from a valuation model and then calibrating such value by looking at the market. In order to sharpen up this complex process we are going to handle, firstly, a valuation procedure that stems from the temporal structure of rates of return adjusted for risk. Secondly, the concept of the physical world of finance is introduced just to move further onto the cost-profit structure of dealers and big players, highlighting the far-reaching role of transaction costs. Next, we work out both ask and bid references prices by linking technical values with spreads. Afterwards, prices in actual trading are contrasted with reference prices, hence bringing out the quasi-rents rates to which dealers earnestly seek for at the end of the day. Lastly, reference prices, spreads, and quasi-rent rates are compounded together quantitatively, so as to enhance the understanding and the practice of pricing in the physical world of finance.

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File URL: http://www.ucema.edu.ar/publicaciones/download/documentos/427.pdf
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Bibliographic Info

Paper provided by Universidad del CEMA in its series CEMA Working Papers: Serie Documentos de Trabajo. with number 427.

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Length: 33 pages
Date of creation: Aug 2010
Date of revision:
Handle: RePEc:cem:doctra:427

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Related research

Keywords: physical world of finance; quasi-rents; cost-profit structure; bid and ask reference prices; financial assets valuation;

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  1. Daniel F. Spulber, 1996. "Market Microstructure and Intermediation," Journal of Economic Perspectives, American Economic Association, vol. 10(3), pages 135-152, Summer.
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