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Title:Towards a general theory of good deal bounds PDF Logo
Authors:Björk, Tomas
Slinko, Irina
Issue Date:2005
Series/Report no.:SSE/EFI Working Paper Series in Economics and Finance 595
Abstract:We consider an incomplete market in the form of a multidimensional Markovian factor model, driven by a general marked point process (representing discrete jump events) as well as by a standard multidimensional Wiener process. Within this framework we study arbitrage free good deal pricing bounds for derivative assets along the lines of Cochrane and Saa-Requejo, extending the CSR results to the point process case. As a concrete application we present numerical results for the classic Merton jump-diffusion model. As a by product of the general theory we also extend the Hansen-Jagannathan bounds for the Sharpe Ratio to the point process setting.
Subjects:Incomplete markets
good deal bounds
financial derivatives
arbitrage pricing
JEL:G12
G13
Document Type:Working Paper
Appears in Collections:SSE/EFI Working Paper Series in Economics and Finance, EFI - The Economic Research Institute, Stockholm School of Economics

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