The Markov Chain Market

Ragnar Norberg

ASTIN Bulletin, 2003, vol. 33, issue 2, 265-287

Abstract: We consider a financial market driven by a continuous time homogeneous Markov chain. Conditions for absence of arbitrage and for completeness are spelled out, non-arbitrage pricing of derivatives is discussed, and details are worked out for some cases. Closed form expressions are obtained for interest rate derivatives. Computations typically amount to solving a set of first order partial differential equations. An excursion into risk minimization in the incomplete case illustrates the matrix techniques that are instrumental in the model.

Date: 2003
References: Add references at CitEc
Citations: View citations in EconPapers (10)

Downloads: (external link)
https://www.cambridge.org/core/product/identifier/ ... type/journal_article link to article abstract page (text/html)

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:cup:astinb:v:33:y:2003:i:02:p:265-287_01

Access Statistics for this article

More articles in ASTIN Bulletin from Cambridge University Press Cambridge University Press, UPH, Shaftesbury Road, Cambridge CB2 8BS UK.
Bibliographic data for series maintained by Kirk Stebbing ().