Exploring Dynamic Asset Pricing within Bachelier’s Market Model

Nancy Asare Nyarko (), Bhathiya Divelgama, Jagdish Gnawali, Blessing Omotade, Svetlozar T. Rachev and Peter Yegon
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Nancy Asare Nyarko: Department of Mathematics and Statistics, Texas Tech University, Lubbock, TX 79409-1042, USA
Bhathiya Divelgama: Department of Mathematics and Statistics, Texas Tech University, Lubbock, TX 79409-1042, USA
Jagdish Gnawali: Department of Mathematics and Statistics, Texas Tech University, Lubbock, TX 79409-1042, USA
Blessing Omotade: Department of Mathematics and Statistics, Texas Tech University, Lubbock, TX 79409-1042, USA
Svetlozar T. Rachev: Department of Mathematics and Statistics, Texas Tech University, Lubbock, TX 79409-1042, USA
Peter Yegon: Department of Mathematics and Statistics, Texas Tech University, Lubbock, TX 79409-1042, USA

JRFM, 2023, vol. 16, issue 8, 1-18

Abstract: This paper delves into the dynamics of asset pricing within Bachelier’s market model (BMM), elucidating the representation of risky asset price dynamics and the definition of riskless assets. It highlights the fundamental differences between BMM and the Black–Scholes–Merton market model (BSMMM), including the extension of BMM to handle assets yielding a simple dividend. Our investigation further explores Bachelier’s term structure of interest rates (BTSIR), introducing a novel version of Bachelier’s Heath–Jarrow–Morton model and adapting the Hull–White interest rate model to fit BMM. This study concludes by examining the applicability of BMM in real-world scenarios, such as those involving environmental, social, and governance (ESG)-adjusted stock prices and commodity spreads.

Keywords: Bachelier’s market model; Bachelier’s partial differential equation and option pricing; Bachelier’s term structure of interest rates (search for similar items in EconPapers)
JEL-codes: C E F2 F3 G (search for similar items in EconPapers)
Date: 2023
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