Dynamic Securities Market Model

Igor V. Evstigneev, Thorsten Hens and Klaus Schenk-Hoppé
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Igor V. Evstigneev: University of Manchester
Thorsten Hens: University of Zurich

Chapter 11 in Mathematical Financial Economics, 2015, pp 105-114 from Springer

Abstract: Abstract The chapter introduces the multi-period dynamic securities market model, an extension of the two-period model, which served as the main framework in Part I of the book. It states a multi-period version of the no-arbitrage hypothesis and discusses the concepts of market scenarios (histories), contingent portfolios, trading strategies, self-financing trading strategies, contingent claims and derivative securities. It presents one of the highlights of Mathematical Finance: the no-arbitrage pricing principle for contingent claims. The chapter concludes with defining the net present value (NPV) of a trading strategy and establishing an equivalent version of the no-arbitrage hypothesis stated in terms of the NPV.

Keywords: Hedging Contingent Claims; Self-financing Trading Strategy; Derivative Securities; Market Scenario; Multi-period Version (search for similar items in EconPapers)
Date: 2015
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Persistent link: https://EconPapers.repec.org/RePEc:spr:sptchp:978-3-319-16571-4_11

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DOI: 10.1007/978-3-319-16571-4_11

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