Financial Markets in Continuous TimeIn modern financial practice, asset prices are modelled by means of stochastic processes, and continuous-time stochastic calculus thus plays a central role in financial modelling. This approach has its roots in the foundational work of the Nobel laureates Black, Scholes and Merton. Asset prices are further assumed to be rationalizable, that is, determined by equality of demand and supply on some market. This approach has its roots in the foundational work on General Equilibrium of the Nobel laureates Arrow and Debreu and in the work of McKenzie. This book has four parts. The first brings together a number of results from discrete-time models. The second develops stochastic continuous-time models for the valuation of financial assets (the Black-Scholes formula and its extensions), for optimal portfolio and consumption choice, and for obtaining the yield curve and pricing interest rate products. The third part recalls some concepts and results of general equilibrium theory, and applies this in financial markets. The last part is more advanced and tackles market incompleteness and the valuation of exotic options in a complete market. |
Contents
Dynamic Models in Discrete Time | 42 |
The BlackScholes Formula | 81 |
Portfolios Optimizing Wealth and Consumption 127 | 126 |
The Yield Curve | 159 |
Equilibrium of Financial Markets in Discrete Time | 191 |
Equilibrium of Financial Markets in Continuous Time | 216 |
Incomplete Markets | 237 |
Other editions - View all
Financial Markets in Continuous Time Rose-Anne Dana,Monique Jeanblanc-Picqué,Monique Jeanblanc Limited preview - 2007 |
Common terms and phrases
agent arbitrage opportunities Arrow-Debreu asset prices assume Black-Scholes formula Brownian motion calculations Chap coefficients conditional expectation constraints contingent claim continuous defined Definition denotes discounted prices distribution dynamics equal equivalent euro exists financial markets finite follows Gaussian Girsanov's theorem hedging Hence HJB equation incomplete markets initial value interest rate Itô process Itô's lemma Karatzas Karoui market is complete martingale measure Mathematical Finance maturity measure Q notation obtain optimal consumption pair payoff portfolio probability measure problem Proof Proposition Radner equilibrium random variable risk risk-neutral measure risk-neutral probability riskless asset satisfies self-financing strategy Shreve spot rate stochastic differential equation stochastic integral strictly positive suppose theory unique utility functions valuation vector volatility zero coupon bond Әс მე