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Can I read On modifications of the Bachelier model on EtoBox?
On modifications of the Bachelier model by Alexander Melnikov; Hongxi Wan is a Economics, Econometrics and Finance article available to read on EtoBox.
What is On modifications of the Bachelier model about?
Mathematically, stock prices described by a classical Bachelier model are sums of a Brownian motion and an absolute continuous drift. Hence, stock prices can take negative values, and financially, it is not appropriate. This drawback is overcome by Samuelson who has proposed the exponential transformation and provided the so-called Geometrical Brownian motion. In this paper, we introduce two additional modifications which are based on SDEs with absorption and reflection. We show that the model with reflection may admit arbitrage, but the model with an appropriate absorption leads to a better model. Comparisons regarding option pricing among the standard Bachelier model, the Black-Scholes model and the modified Bachelier model with absorption at zero are executed. Moreover, our main findings are also devoted to the Conditional Value-at-Risk based partial hedging in the framework of these models. Illustrative numerical examples are provided.
Who reads On modifications of the Bachelier model?
It is typically read by researchers, students, and practitioners in Economics, Econometrics and Finance.
- Author
- Alexander Melnikov; Hongxi Wan
- Publisher
- Springer Science and Business Media LLC
- Published
- 2021
- Language
- EN
- Field
- Economics, Econometrics and Finance (Social Sciences)