Questions tagged [financial-engineering]
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Why non-stationary data cannot be analyzed?
Searching online, i found out that non-stationary cannot be analyzed with traditional econometric techniques as in case of non-stationarity some basic model assupmtions are not met and correct ...
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Use of Girsanov's theorem in bond pricing
Assume that we want to calculate the time $t=0$ price of a bond:
$B(0,T) = E_P[\exp(-\int_0^T r_s ds)]$,
where $r$ is the interest rate following the SDE
$dr_t=k(\theta-r_t)dt+\sigma dB_t=b(r_t)dt+\...
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Funded equity collars and margin loans
There is an article in the Financial Times today concerning equity funded collars [1]. The equity collar structure is used by a counterparty $A$ which wants to build up a position in a stock $S_t$. ...
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Law of One price and the Inconcistent pricing strategy
Background Information:
A market satisfies the Law of One Price if every two self-financing strategies that replicate the same claim have the same initial value.
An inconsistent pricing strategy is ...
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Formula for conditional expectation. Related to the Fundamental Theorems of Asset Pricing
Let $\lambda$ be a probability measure on $\Omega$ (finite), with filtration $\{\mathcal{F}_t\}$. Define $\nu(X) = \lambda\left(X\frac{d\nu}{d\lambda}\right)$, where $\frac{d\nu}{d\lambda}$ is a ...
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