Martingale Arbitrage Pricing in Real Market

Yi Tang and Bin Li
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Yi Tang: Goldman, Sachs & Co., Inc., USA
Bin Li: Westport Financial, LLC, USA

Chapter 2 in Quantitative Analysis, Derivatives Modeling, and Trading Strategies:In the Presence of Counterparty Credit Risk for the Fixed-Income Market, 2007, pp 37-122 from World Scientific Publishing Co. Pte. Ltd.

Abstract: AbstractThe following sections are included:Basics of ArbitrageArbitrage Opportunity and Arbitrage PricingSelf Financing Trading Strategies and ArbitrageSubtleties in Arbitrage Pricing in Real MarketCounterparty Credit RiskThe Risk-free Interest RateBid/Ask SpreadUn-hedgeable VariablesPrimary Model Calibration and Secondary Model CalibrationModels for Pricing, Models for Hedging, and Hedging CalibrationIncomplete Market and Completing the MarketArbitrage Models and Non-arbitrage ModelsArbitrage Models and Non-arbitrage ModelsFinancial Market Participants and Financial ActivitiesTrading Opportunities and StrategiesSimple Bonds and IR SwapsCallable Bonds and Cancelable IR SwapsExamples of Practical ComplicationsStructured Notes and Exotic DerivativesIR/FX Hybrid Notes and DerivativesAsset Swaps and RepackagingCredit Hybrid DerivativesCapital Structure ArbitrageQuasi-arbitrage OpportunitiesWhy Should Derivatives Instruments ExistMartingale Arbitrage ModelingHarrison-Pliska Martingale No-arbitrage TheoremMartingale Derivatives Pricing in a Binomial EconomyHarrison-Pliska Martingale No-arbitrage Theorem for Assets with Intermediate Cashflows or IncomeFoundation for Arbitrage PricingExamples of Martingales and Equivalent Martingale MeasuresMartingale Representation and SDE for Derivatives PricingChange of Probability Measure and Importance SamplingPDE for Derivatives Pricing and P&L DecompositionSABR Stochastic Volatility ModelAn Example of Martingale Modeling in Real MarketProblems

Keywords: CVA; Credit Valuation Adjustment; Counterparty Credit; BGM Model; HJM Model; RS Model; Martingale; Derivatives Modeling; Martingale Resampling; Orthogonal Exponential Spline; Stat Arb; Nonexploding Bushy Tree; NBT; PRDC; TARN; Snowball; Snowbear; CCDS; Credit Extinguisher (search for similar items in EconPapers)
Date: 2007
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