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A Diffusion Approximation for the Riskless Profit Under Selling of Discrete Time Call Options. Non-identically Distributed Jumps

Author

Listed:
  • Nagaev, Alexander V.

    (Faculty of Mathematics and Computer Sciences, Nicolaus Copernicus University)

  • Nagaev, Sergei A.

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

  • Kunst, Robert M.

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

Abstract

A discrete time model of financial markets is considered. It is assumed that the relative jumps of the risky security price are independent non-identically distributed random variables. In the focus of attention is the expected non-risky profit of the investor that arises when the jumps of the stock price are bounded while the investor follows the upper hedge. The considered discrete time model is approximated by a continuous time model that generalizes the classical geometrical Brownian motion.

Suggested Citation

  • Nagaev, Alexander V. & Nagaev, Sergei A. & Kunst, Robert M., 2005. "A Diffusion Approximation for the Riskless Profit Under Selling of Discrete Time Call Options. Non-identically Distributed Jumps," Economics Series 164, Institute for Advanced Studies.
  • Handle: RePEc:ihs:ihsesp:164
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    File URL: http://www.ihs.ac.at/publications/eco/es-164.pdf
    File Function: First version, 2005
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    References listed on IDEAS

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    More about this item

    Keywords

    Asymptotic uniformity; Local limit theorem; Volatility;

    JEL classification:

    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G13 - Financial Economics - - General Financial Markets - - - Contingent Pricing; Futures Pricing

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