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Estimating the Implied Risk‐Neutral Density for the US Market Portfolio *

Stephen Figlewski

in Volatility and Time Series Econometrics: Essays in Honor of Robert Engle

Published in print:
2010
Published Online:
May 2010
ISBN:
9780199549498
eISBN:
9780191720567
Item type:
chapter
Publisher:
Oxford University Press
DOI:
10.1093/acprof:oso/9780199549498.003.0015
Subject:
Economics and Finance, Econometrics

This chapter presents a new methodology for extracting complete well-behaved risk-neutral density (RND) functions from options market prices, and illustrates the potential of this tool for ... More


 International Agreements

Andrew T Guzman

in How International Law Works: A Rational Choice Theory

Published in print:
2008
Published Online:
January 2008
ISBN:
9780195305562
eISBN:
9780199867004
Item type:
chapter
Publisher:
Oxford University Press
DOI:
10.1093/acprof:oso/9780195305562.003.0004
Subject:
Political Science, International Relations and Politics

This chapter analyzes the most important source of international law – the international agreement. It first explains why it is appropriate to think of states as being risk neutral rather than risk ... More


A Review of General Asset Pricing Theory

Claus Munk

in Fixed Income Modelling

Published in print:
2011
Published Online:
September 2011
ISBN:
9780199575084
eISBN:
9780191728648
Item type:
chapter
Publisher:
Oxford University Press
DOI:
10.1093/acprof:oso/9780199575084.003.0004
Subject:
Economics and Finance, Financial Economics

The pricing of fixed income securities follows the same general principles as the pricing of all other financial assets. This chapter explains some important general concepts and results in asset ... More


Economics of Risk

John P. Burkett

in Microeconomics: Optimization, Experiments, and Behavior

Published in print:
2006
Published Online:
October 2011
ISBN:
9780195189629
eISBN:
9780199850778
Item type:
chapter
Publisher:
Oxford University Press
DOI:
10.1093/acprof:oso/9780195189629.003.0019
Subject:
Economics and Finance, Microeconomics

This chapter examines the economics of risk and probability associated with choice. It discusses the development of probability concepts and the basic laws of probability. It explains the related ... More


Risk-Adjusted Probabilities

Claus Munk

in Financial Asset Pricing Theory

Published in print:
2013
Published Online:
May 2013
ISBN:
9780199585496
eISBN:
9780191751790
Item type:
chapter
Publisher:
Oxford University Press
DOI:
10.1093/acprof:oso/9780199585496.003.0012
Subject:
Economics and Finance, Econometrics

It is well known from the binomial model and the Black-Scholes model that an option can be priced by the expectation under the risk-neutral probability measure of the option’s discounted payoff. This ... More


ARBITRAGE-FREE PRICING IN COMPLETE MARKETS

Patrick L. Anderson

in The Economics of Business Valuation: Towards a Value Functional Approach

Published in print:
2013
Published Online:
September 2013
ISBN:
9780804758307
eISBN:
9780804783224
Item type:
chapter
Publisher:
Stanford University Press
DOI:
10.11126/stanford/9780804758307.003.0010
Subject:
Economics and Finance, Financial Economics

The author describes one of the breakthrough concepts of modern finance: the use of the no arbitrage principle in complete markets as the basis for the powerful mathematics of “risk neutral” or ... More


BOND PRICING, INTEREST-RATE PROCESSES, AND THE LIBOR MARKET MODEL

Ser-Huang Poon and Richard Stapleton

in Asset Pricing in Discrete Time: A Complete Markets Approach

Published in print:
2005
Published Online:
July 2005
ISBN:
9780199271443
eISBN:
9780191602559
Item type:
chapter
Publisher:
Oxford University Press
DOI:
10.1093/0199271445.003.0007
Subject:
Economics and Finance, Financial Economics

‘Bond Pricing, Interest-rate Processes, and the LIBOR Market Model’ uses the complete market, pricing kernel approach to value bonds, given stochastic interest rates. To value interest-rate ... More


State Prices

Claus Munk

in Financial Asset Pricing Theory

Published in print:
2013
Published Online:
May 2013
ISBN:
9780199585496
eISBN:
9780191751790
Item type:
chapter
Publisher:
Oxford University Press
DOI:
10.1093/acprof:oso/9780199585496.003.0004
Subject:
Economics and Finance, Econometrics

Individual assets can be priced by combining the future state-dependent asset-specific dividends with a general pricing rule that applies to all assets. The general pricing rule can be represented by ... More


OPTION PRICING IN A SINGLE-PERIOD MODEL

Ser-Huang Poon and Richard Stapleton

in Asset Pricing in Discrete Time: A Complete Markets Approach

Published in print:
2005
Published Online:
July 2005
ISBN:
9780199271443
eISBN:
9780191602559
Item type:
chapter
Publisher:
Oxford University Press
DOI:
10.1093/0199271445.003.0003
Subject:
Economics and Finance, Financial Economics

‘Option Pricing in a Single-Period Model’ uses the one-period complete markets model to derive forward prices of European-style options relates them to the forward price of the underlying asset. The ... More


Prepayment Risk Neutrality: The Concept of prOAS

Andrew Davidson and Alexander Levin

in Mortgage Valuation Models: Embedded Options, Risk, and Uncertainty

Published in print:
2014
Published Online:
August 2014
ISBN:
9780199998166
eISBN:
9780199363698
Item type:
chapter
Publisher:
Oxford University Press
DOI:
10.1093/acprof:oso/9780199998166.003.0012
Subject:
Economics and Finance, Financial Economics

This chapter offers a theory that explains the origin of OAS. Observing that OAS levels differ across agency MBS types, the chapter concludes that prepayment model risk plays a fundamental role in ... More


Pricing Personal Account Benefit Guarantees: A Simplified Approach

Clark Burdick and Kent Smetters

Andrew Biggs (ed.)

in Social Security Policy in a Changing Environment

Published in print:
2009
Published Online:
February 2013
ISBN:
9780226076485
eISBN:
9780226076508
Item type:
chapter
Publisher:
University of Chicago Press
DOI:
10.7208/chicago/9780226076508.003.0008
Subject:
Economics and Finance, Public and Welfare

This chapter demonstrates how a model for calculating the expected cost of a benefit guarantee can easily be modified to present the market price of personal account guarantees as a supplement to ... More


Continuous-Time Topics

Kerry E. Back

in Asset Pricing and Portfolio Choice Theory

Published in print:
2017
Published Online:
May 2017
ISBN:
9780190241148
eISBN:
9780190241179
Item type:
chapter
Publisher:
Oxford University Press
DOI:
10.1093/acprof:oso/9780190241148.003.0015
Subject:
Economics and Finance, Financial Economics

The fundamental PDE for valuing cash flows or cash flow streams is explained. In a complete market, an investor’s optimal wealth satisfies the fundamental PDE, and this provides a means of ... More


The Concept of Credit Option-Adjusted Spread

Andrew Davidson and Alexander Levin

in Mortgage Valuation Models: Embedded Options, Risk, and Uncertainty

Published in print:
2014
Published Online:
August 2014
ISBN:
9780199998166
eISBN:
9780199363698
Item type:
chapter
Publisher:
Oxford University Press
DOI:
10.1093/acprof:oso/9780199998166.003.0014
Subject:
Economics and Finance, Financial Economics

The chapter begins with demonstrating why a stochastic view at losses is necessary to explain non-agency MBS market prices. It then expands the traditional OAS method to include random home prices ... More


Risk Neutral Valuation

Gilles Bénéplanc and Jean-Charles Rochet

in Risk Management in Turbulent Times

Published in print:
2011
Published Online:
April 2015
ISBN:
9780199774081
eISBN:
9780190258474
Item type:
chapter
Publisher:
Oxford University Press
DOI:
10.1093/acprof:osobl/9780199774081.003.0008
Subject:
Business and Management, Finance, Accounting, and Banking

This chapter focuses on risk neutral valuation (RNV), a method for pricing risky securities. RNV is used for the pricing of options and other derivatives, but can also be applied to determining the ... More


Incomplete Markets

Tomas Björk

in Arbitrage Theory in Continuous Time

Published in print:
1998
Published Online:
November 2003
ISBN:
9780198775188
eISBN:
9780191595981
Item type:
chapter
Publisher:
Oxford University Press
DOI:
10.1093/0198775180.003.0010
Subject:
Economics and Finance, Financial Economics

This chapter provides a detailed discussion of the problems surrounding arbitrage pricing in incomplete markets.


How to Price New Loans

Andrew Davidson and Alexander Levin

in Mortgage Valuation Models: Embedded Options, Risk, and Uncertainty

Published in print:
2014
Published Online:
August 2014
ISBN:
9780199998166
eISBN:
9780199363698
Item type:
chapter
Publisher:
Oxford University Press
DOI:
10.1093/acprof:oso/9780199998166.003.0021
Subject:
Economics and Finance, Financial Economics

This chapter discusses valuation (setting rates and points) of new loans using information from the secondary market. It considers two implied valuation methods: risk-neutral pricing and virtual ... More


Arbitrage Pricing

Tomas Björk

in Arbitrage Theory in Continuous Time

Published in print:
1998
Published Online:
November 2003
ISBN:
9780198775188
eISBN:
9780191595981
Item type:
chapter
Publisher:
Oxford University Press
DOI:
10.1093/0198775180.003.0006
Subject:
Economics and Finance, Financial Economics

In this chapter, the reader is introduced to the Black‐Scholes model and to the basic ideas behind arbitrage pricing of contingent claims. We treat European options, futures, futures options, and ... More


Asset Pricing I: Risk-Neutral Pricing

Harold L. Cole

in Finance and Financial Intermediation: A Modern Treatment of Money, Credit, and Banking

Published in print:
2019
Published Online:
May 2019
ISBN:
9780190941697
eISBN:
9780190949068
Item type:
chapter
Publisher:
Oxford University Press
DOI:
10.1093/oso/9780190941697.003.0003
Subject:
Economics and Finance, Macro- and Monetary Economics, Financial Economics

This chapter develop the an asset pricing methodology, presents the standard risk-neutral asset pricing model, and uses it to price a wide of assets.


Dividends

Tomas Björk

in Arbitrage Theory in Continuous Time

Published in print:
1998
Published Online:
November 2003
ISBN:
9780198775188
eISBN:
9780191595981
Item type:
chapter
Publisher:
Oxford University Press
DOI:
10.1093/0198775180.003.0011
Subject:
Economics and Finance, Financial Economics

Here, the theory developed earlier is extended to the case of dividend‐paying assets.


Arbitrage Pricing

Tomas Björk

in Arbitrage Theory in Continuous Time

Published in print:
2019
Published Online:
February 2020
ISBN:
9780198851615
eISBN:
9780191886218
Item type:
chapter
Publisher:
Oxford University Press
DOI:
10.1093/oso/9780198851615.003.0007
Subject:
Economics and Finance, Econometrics

The chapter starts with a detailed discussion of the bank account in discrete and continuous time. The Black–Scholes model is then introduced, and using the principle of no arbitrage we study the ... More


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