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A Diffusion Approximation for the Riskless Profit under Selling of Discrete Time Call Options

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  • Nagaev, Sergei A.

    (Department of Economics and Finance, Institute for Advanced Studies, Vienna)

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    Abstract

    A discrete time model of a financial market is considered. We focus on the study of a guaranteed profit of an investor which arises when the stock price jumps are bounded. The limit distribution of the profit as the model becomes closer to the classical model of the geometric Brownian motion is established. It is of interest that in contrast with the discrete approximation, no guaranteed profit occurs in the approximated continuous time model.

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    File URL: http://www.ihs.ac.at/publications/eco/es-137.pdf
    File Function: First version, 2003
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    Bibliographic Info

    Paper provided by Institute for Advanced Studies in its series Economics Series with number 137.

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    Length: 14 pages
    Date of creation: Sep 2003
    Date of revision:
    Handle: RePEc:ihs:ihsesp:137

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    Related research

    Keywords: Asymptotic uniformity; Weak convergence in Skorokhod Space D[0; 1];

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