Arbitrage Values Generally Depend On A Parametric Rate of Return

Robin J. Brenner and J. L. Denny

Mathematical Finance, 1991, vol. 1, issue 3, 45-52

Abstract: Let X denote a positive Markov stochastic integral, and let S(t, μ) = exp(μt)X(t) represent the price of a security at time t with infinitesimal rate of return μ. Contingent claim (option) pricing formulas typically do not depend on μ. We show that if a contingent claim is not equivalent to a call option having exercise price equal to zero, then security prices having this property—option prices do not depend on μ—must satisfy: for some V (0, T), In(S(t, μ)X(V)) is Gaussian on a time interval [V, T], and hence S(t, μ) has independent observed returns. With more assumptions, V= 0, and there exist equivalent martingale measures.

Date: 1991
References: View complete reference list from CitEc
Citations:

Downloads: (external link)
https://doi.org/10.1111/j.1467-9965.1991.tb00015.x

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:bla:mathfi:v:1:y:1991:i:3:p:45-52

Ordering information: This journal article can be ordered from
http://www.blackwell ... bs.asp?ref=0960-1627

Access Statistics for this article

Mathematical Finance is currently edited by Jerome Detemple

More articles in Mathematical Finance from Wiley Blackwell
Bibliographic data for series maintained by Wiley Content Delivery ().