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How to account for virtual arbitrage in the standard derivative pricing

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  • Kirill Ilinski

Abstract

In this short note we show how virtual arbitrage opportunities can be modelled and included in the standard derivative pricing without changing the general framework.

Suggested Citation

  • Kirill Ilinski, 1999. "How to account for virtual arbitrage in the standard derivative pricing," Papers cond-mat/9902047, arXiv.org.
  • Handle: RePEc:arx:papers:cond-mat/9902047
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    File URL: http://arxiv.org/pdf/cond-mat/9902047
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    References listed on IDEAS

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    1. Merton, Robert C., 1976. "Option pricing when underlying stock returns are discontinuous," Journal of Financial Economics, Elsevier, vol. 3(1-2), pages 125-144.
    2. Kirill Ilinski & Alexander Stepanenko, 1999. "Derivative pricing with virtual arbitrage," Papers cond-mat/9902046, arXiv.org.
    3. Black, Fischer & Scholes, Myron S, 1973. "The Pricing of Options and Corporate Liabilities," Journal of Political Economy, University of Chicago Press, vol. 81(3), pages 637-654, May-June.
    4. Hull, John C & White, Alan D, 1987. " The Pricing of Options on Assets with Stochastic Volatilities," Journal of Finance, American Finance Association, vol. 42(2), pages 281-300, June.
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    Cited by:

    1. Otto, Matthias, 2001. "Finite arbitrage times and the volatility smile?," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 299(1), pages 299-304.
    2. Mauricio Contreras & Rely Pellicer & Daniel Santiagos & Marcelo Villena, 2015. "Calibration and simulation of arbitrage effects in a non-equilibrium quantum Black-Scholes model by using semiclassical methods," Papers 1512.05377, arXiv.org.
    3. Matthias Otto, 1999. "Stochastic relaxational dynamics applied to finance: towards non-equilibrium option pricing theory," Papers cond-mat/9906196, arXiv.org, revised Oct 1999.

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