Froot and Stein Revisited Once Again

Montserrat Guillén, Nils Høgh, Jens Perch Nielsen and Ana M. Pérez-Marín

Annals of Actuarial Science, 2008, vol. 3, issue 1-2, 121-126

Abstract: Høgh, Linton and Nielsen (2006) showed that the famous result in the award winning paper of Froot and Stein (1998) is not correct in the sense that their result does not follow from their assumptions. In this paper we show that the economic intuition behind the paper of Froot and Stein (1998) is correct and that their result can be obtained when the market is reformulated in a continuous time setting and modern market theory is employed.

Date: 2008
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