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3
votes
0answers
65 views

How to hedge a derivative that pays the reciprocal of the stock price?

1) Suppose S is the stock price, how to hedge a derivative that pays $1/S_t$ at time $t$? 2) Suppose there will be a dividend of amount $d$ between $t$ and $T$, how to hedge a derivative that pays ...
1
vote
1answer
69 views

Pricing a piece of asset whose dividend stream following a Markovian matrix

I'm trying to calculate the result of an simple example on page 326-327, in Harrison and Kreps(1978). It's pricing a piece of asset whose dividend stream is a simple Markovian process. Here's my ...
4
votes
2answers
89 views

Critique against consumption-based asset pricing theory?

I find asset pricing theory very vague and full of assumptions, especially the consumption-based modern theory. In its essence, the theory states that asset prices depend on the covariance between ...
2
votes
1answer
97 views

What's the meaning of the intercept in asset pricing model?

I would like to understand the role of alpha (intercept) in the regression-based asset pricing model. What's the meaning of the intercept? Does it have to be necessarily not significant and equal to ...
1
vote
0answers
78 views

How to estimate market integration parameter in Singer-Terhaar model for E(r)?

Singer-Terhaar is part of CFA II and III curriculum. It estimates risk premium for some asset, traded at some local market, as weighted average of expected premiums for the case of (1) local market, ...
4
votes
3answers
225 views

Semi-strong efficiency and HFT

The semi-strong efficient market hypothesis states that In semi-strong-form efficiency, it is implied that share prices adjust to publicly available new information very rapidly and in an ...
1
vote
0answers
109 views

Market Standard Pricing Models for Fixed Income Securities (Vanilla)

To clarify my heading, I have been searching for a material that consolidates all standard Fixed Income Security Pricing. E.g. ...
4
votes
0answers
115 views

ERP and FF 3-factor model

In a more conservative estimate than a simple historical average, Fama & French estimate (US) equity risk premium at 3-4% (e.g., Equity Risk Premium, JF, 2002). This suggests that in an APT-like ...
2
votes
2answers
104 views

Pricing Assets in the S&P Dynamic Asset Exchange

I am attempting to recreate the S&P Dynamic Asset Exchange using the methodology outlined in this paper. I am struggling to 'normalize' the prices of the assets properly. On page 6 of the ...
8
votes
2answers
176 views

St Petersburg lottery pricing & short investing horizons

I am a statistician (no solid background in finance). Please forward me to a book \ chapter \ paper to resolve the following general question. Suppose we have a stock with the following monthly return ...
6
votes
1answer
2k views

What are the main differences between discrete and continuous time models when modeling asset price dynamics?

My intuition says that both approaches, discrete time models and continuous time models will be models (i.e. approximations) of reality. Therefore it should be possible to develop useful models in ...
10
votes
6answers
1k views

How to generate a random price series with a specified range and correlation with an actual price?

I want to generate a mock price series. I want it to be within a certain range and have a defined correlation with the original price series. If I choose, say, oil, I want as many time series which ...
6
votes
1answer
405 views

Can options volume have an impact on the price of the underlying asset?

Can options volume affect the underlying asset price indirectly? I know that options buying/selling does not directly affect the price of the underlying asset (rather, the asset price contributes most ...
7
votes
1answer
473 views

What methods do I need to learn in order forecast asset price movements?

What are the standard models used to forecast asset price movements? For example, if I were to trade an option, what model would I use in conjunction with option pricing models to forecast the stock ...