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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.

Suggested Citation

  • Rodolfo Apreda, 2010. "The pricing of financial assets in the physical world of finance," CEMA Working Papers: Serie Documentos de Trabajo. 427, Universidad del CEMA.
    • Handle: RePEc:cem:doctra:427
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    File URL: https://www.ucema.edu.ar/publicaciones/download/documentos/427.pdf
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    References listed on IDEAS

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    1. Shleifer, Andrei & Summers, Lawrence H, 1990. "The Noise Trader Approach to Finance," Journal of Economic Perspectives, American Economic Association, vol. 4(2), pages 19-33, Spring.
    2. 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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    More about this item

    Keywords

    physical world of finance; quasi-rents; cost-profit structure; bid and ask reference prices; financial assets valuation;
    All these keywords.

    JEL classification:

    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G20 - Financial Economics - - Financial Institutions and Services - - - General

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