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Multivariate Partial Distribution: A New Method of Pricing Group Assets and Analyzing the Risk for Hedging

  • Feng Dai

    (Zhengzhou Information Engineering University)

  • Hui Liu

    (Zhengzhou Information Engineering University)

  • Ying Wang

    (Zhengzhou Information Engineering University)

Registered author(s):

Based on the Partial Distribution (Feng Dai, 2001), a new model to price an asset (MPA) is given. Going a step further, this paper puts forward the Multivariate Partial Distribution (MPD) for the first time. By use of MPD, we could gain a new kind of model for pricing the group assets (MPGA), in which the competition and cooperation are considered. Based on MPGA, the integrated risk of group assets can be divided to hedging risk and independent risk, and the corresponding models are given. So we could analyze the price risk of group assets in more particular way. The conclusions show that assets are hedged in simple way of one to one can not eliminates completely their market risk in many cases. So there should be an optimal ratio between underlying asset and its derivative in hedging. The approach to determine the optimal ratio in hedging is offered in this paper. By the MPA and MPGA, we also could interpret five of interesting economic propositions in analytic way.

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File URL: http://128.118.178.162/eps/em/papers/0507/0507012.pdf
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Paper provided by EconWPA in its series Econometrics with number 0507012.

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Length: 15 pages
Date of creation: 24 Jul 2005
Date of revision:
Handle: RePEc:wpa:wuwpem:0507012
Note: Type of Document - pdf; pages: 15. There is the analysis for optimal hedging risk in this paper.
Contact details of provider: Web page: http://128.118.178.162

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  1. Breeden, Douglas T., 1979. "An intertemporal asset pricing model with stochastic consumption and investment opportunities," Journal of Financial Economics, Elsevier, vol. 7(3), pages 265-296, September.
  2. Merton, Robert C, 1973. "An Intertemporal Capital Asset Pricing Model," Econometrica, Econometric Society, vol. 41(5), pages 867-87, September.
  3. Ross, Stephen A., 1978. "Mutual fund separation in financial theory--The separating distributions," Journal of Economic Theory, Elsevier, vol. 17(2), pages 254-286, April.
  4. Ross, Stephen A., 1976. "The arbitrage theory of capital asset pricing," Journal of Economic Theory, Elsevier, vol. 13(3), pages 341-360, December.
  5. Feng Dai & Zifu Qin, 2004. "Df Structure Models For Options Pricing," Finance 0403005, EconWPA.
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