Numeraire Invariance and application to Option Pricing and Hedging

Farshid Jamshidian

MPRA Paper from University Library of Munich, Germany

Abstract: This is a short version of the paper of Exchange Options (2007), concentrating on the principle of numeraire invariance. It emphasizes application to unique pricing in arbitrage-free model, the derivation of hedge ratios and the PDE when price ratios are diffusions, explicit representations in the multivariate Poisson model, and the role played by homogeneity.

Keywords: Numeraire invariance; hedging; self-financing trading strategy; predictable representation; unique pricing; arbitrage-free; martingale; homogeneous payoff; Markovian; It\^o's formula; SDE; PDE; geometric Brownian motion; exponential Poisson process (search for similar items in EconPapers)
JEL-codes: G13 (search for similar items in EconPapers)
Date: 2008-02-14
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

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