The Experts below are selected from a list of 5871354 Experts worldwide ranked by ideXlab platform
Chaohua Dong - One of the best experts on this subject based on the ideXlab platform.
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solving replication problems in a complete market by orthogonal series expansion
The North American Journal of Economics and Finance, 2013Co-Authors: Chaohua Dong, Jiti GaoAbstract:Abstract We reconsider the replication problem for contingent claims in a complete market under a general framework. Since there are various limitations in the Black–Scholes pricing formula, we propose a new method to obtain an explicit Self-Financing trading strategy expression for replications of claims in a general model. The main advantage of our method is that we propose using an orthogonal expansion method to derive a closed-form expression for the Self-Financing strategy that is associated with some general underlying asset processes. As a consequence, a replication strategy is obtained for a European option. Converse to the traditional Black–Scholes theory, we derive a pricing formula for a European option from the proposed replication strategy that is quite different from the Black–Scholes pricing formula. We provide an implementation procedure and both numerical and empirical examples to show how the proposed trading strategy works in practice and then compare with a replication strategy based on the Black–Scholes theory.
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solving replication problems in complete market by orthogonal series expansion
Social Science Research Network, 2012Co-Authors: Jiti Gao, Chaohua DongAbstract:We reconsider the replication problem for contingent claims in a complete market under a general framework. Since there are various limitations in the Black-Scholes pricing formula, we propose a new method to obtain an explicit Self-Financing trading strategy expression for replications of claims in a general model. The departure of our method from the literature is, using an orthogonal expansion of a process related to the proposed trading strategy, we can construct a complete orthonormal basis for the space of cumulative gains in the complete market so that every Self-Financing strategy can be expressed as a combination of the basis. Hence, a replication strategy is obtained for a European option. Converse to the traditional Black-Scholes theory, we derive a pricing formula for a European option from the proposed replication strategy that is quite different from the Black-Scholes pricing formula. We then provide an implementation procedure to show how the proposed trading strategy works in practice and then compare with a replication strategy based on the Black-Scholes theory.
Jiti Gao - One of the best experts on this subject based on the ideXlab platform.
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solving replication problems in a complete market by orthogonal series expansion
The North American Journal of Economics and Finance, 2013Co-Authors: Chaohua Dong, Jiti GaoAbstract:Abstract We reconsider the replication problem for contingent claims in a complete market under a general framework. Since there are various limitations in the Black–Scholes pricing formula, we propose a new method to obtain an explicit Self-Financing trading strategy expression for replications of claims in a general model. The main advantage of our method is that we propose using an orthogonal expansion method to derive a closed-form expression for the Self-Financing strategy that is associated with some general underlying asset processes. As a consequence, a replication strategy is obtained for a European option. Converse to the traditional Black–Scholes theory, we derive a pricing formula for a European option from the proposed replication strategy that is quite different from the Black–Scholes pricing formula. We provide an implementation procedure and both numerical and empirical examples to show how the proposed trading strategy works in practice and then compare with a replication strategy based on the Black–Scholes theory.
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solving replication problems in complete market by orthogonal series expansion
Social Science Research Network, 2012Co-Authors: Jiti Gao, Chaohua DongAbstract:We reconsider the replication problem for contingent claims in a complete market under a general framework. Since there are various limitations in the Black-Scholes pricing formula, we propose a new method to obtain an explicit Self-Financing trading strategy expression for replications of claims in a general model. The departure of our method from the literature is, using an orthogonal expansion of a process related to the proposed trading strategy, we can construct a complete orthonormal basis for the space of cumulative gains in the complete market so that every Self-Financing strategy can be expressed as a combination of the basis. Hence, a replication strategy is obtained for a European option. Converse to the traditional Black-Scholes theory, we derive a pricing formula for a European option from the proposed replication strategy that is quite different from the Black-Scholes pricing formula. We then provide an implementation procedure to show how the proposed trading strategy works in practice and then compare with a replication strategy based on the Black-Scholes theory.
P A Forsyth - One of the best experts on this subject based on the ideXlab platform.
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better than pre commitment mean variance portfolio allocation strategies a semi self financing hamilton jacobi bellman equation approach
European Journal of Operational Research, 2016Co-Authors: Duyminh Dang, P A ForsythAbstract:We generalize the idea of semi-Self-Financing strategies, originally discussed in Ehrbar (1990), and later formalized in Cui et al (2012), for the pre-commitment mean-variance (MV) optimal portfolio allocation problem. The proposed semi-Self-Financing strategies are built upon a numerical solution framework for Hamilton–Jacobi–Bellman equations, and can be readily employed in a very general setting, namely continuous or discrete re-balancing, jump-diffusions with finite activity, and realistic portfolio constraints. We show that if the portfolio wealth exceeds a threshold, an MV optimal strategy is to withdraw cash. These semi-Self-Financing strategies are generally non-unique. Numerical results confirming the superiority of the efficient frontiers produced by the strategies with positive cash withdrawals are presented. Tests based on estimation of parameters from historical time series show that the semi-Self-Financing strategy is robust to estimation ambiguities.
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better than pre commitment mean variance portfolio allocation strategies a semi self financing hamilton jacobi bellman equation approach
European Journal of Operational Research, 2016Co-Authors: Duyminh Dang, P A ForsythAbstract:We generalize the idea of semi-Self-Financing strategies, originally discussed in Ehrbar (1990), and later formalized in Cui et al (2012), for the pre-commitment mean-variance (MV) optimal portfolio allocation problem. The proposed semi-Self-Financing strategies are built upon a numerical solution framework for Hamilton–Jacobi–Bellman equations, and can be readily employed in a very general setting, namely continuous or discrete re-balancing, jump-diffusions with finite activity, and realistic portfolio constraints. We show that if the portfolio wealth exceeds a threshold, an MV optimal strategy is to withdraw cash. These semi-Self-Financing strategies are generally non-unique. Numerical results confirming the superiority of the efficient frontiers produced by the strategies with positive cash withdrawals are presented. Tests based on estimation of parameters from historical time series show that the semi-Self-Financing strategy is robust to estimation ambiguities.
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better than pre commitment mean variance portfolio allocation strategies a semi self financing hamilton jacobi bellman equation approach
2015Co-Authors: Duyminh Dang, P A ForsythAbstract:We generalize the idea of semi-Self-Financing strategies, originally discussed in Ehrbar, Journal of Economic Theory (1990), and later formalized in em Cui et al, Mathematical Finance 22 (2012), for the pre-commitment mean-variance (MV) optimal portfolio allocation problem. The proposed semi-Self-Financing strategies are built upon a numerical solution framework for Hamilton-Jacobi-Bellman equations, and can be readily employed in a very general setting, namely continuous or discrete re-balancing, jump-diffusions with finite activity, and realistic portfolio constraints. We show that if the portfolio wealth exceeds a threshold, an MV optimal strategy is to withdraw cash. These semi-Self-Financing strategies are generally non-unique. Numerical results confirming the superiority of the efficient frontiers produced by the strategies with positive cash withdrawals are presented.Tests based on estimation of parameters from historical time series show that the semi-Self-Financing strategy is robust to estimation ambiguities.
Yongseok Shin - One of the best experts on this subject based on the ideXlab platform.
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self insurance vs self financing a welfare analysis of the persistence of shocks
Journal of Economic Theory, 2011Co-Authors: Francisco J Buera, Yongseok ShinAbstract:Abstract We study the welfare cost of market incompleteness in a generalized Bewley model where idiosyncratic risk takes the form of entrepreneurial productivity shocks. Market incompleteness in our framework has two dimensions. First, in the Bewley tradition, only a limited set of instruments for consumption smoothing is available. Second, entrepreneursʼ capital rental is subject to collateral constraints. As is well known, it is harder to self-insure against more persistent shocks, and the welfare cost of missing consumption insurance increases with shock persistence. On the other hand, with collateral constraints, an increase in shock persistence leads to better allocation of production factors through entrepreneursʼ Self-Financing, and the welfare cost of imperfect capital rental markets decreases with shock persistence. The overall welfare cost of market incompleteness can be increasing, decreasing, or even non-monotone in shock persistence, depending on the relative strengths of its two components—the cost of missing insurance and the cost of imperfect capital markets.
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self insurance vs self financing a welfare analysis of the persistence of shocks
2010Co-Authors: Francisco J Buera, Yongseok ShinAbstract:market frictions over time with Self-Financing. With intermediate levels of frictions in the capital market, welfare costs of market incompleteness have a U shape against the persistence of idiosyncratic shocks. The right arm of the U reflects the difficulty of self-insurance against very persistent shocks; and the left arm, the difficulty of overcoming capital market frictions through Self-Financing when entrepreneurial opportunities are short-lived.
Artur Radziwill - One of the best experts on this subject based on the ideXlab platform.
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sources for financing domestic capital is foreign saving a viable option for developing countries
Journal of International Money and Finance, 2007Co-Authors: Joshua Aizenman, Brian Pinto, Artur RadziwillAbstract:This paper proposes a new method for measuring the degree to which the domestic capital stock is self-financed. The main idea is to use the national accounts to construct a Self-Financing ratio, indicating what would have been the autarky stock of tangible capital supported by actual past domestic saving, relative to the actual stock of capital. We use the constructed measure of selffinancing to evaluate the impact of the growing global financial integration on the sources of financing domestic capital stocks in developing countries. On average, 90% of the stock of capital in developing countries is self financed, and this fraction was surprisingly stable throughout the 1990s. The greater integration of financial markets has not changed the dispersion of Self-Financing rates, and the correlation between changes in de-facto financial integration and changes in selffinancing ratios is statistically insignificant. There is no evidence of any “growth bonus” associated with increasing the financing share of foreign savings. In fact, the evidence suggests the opposite:
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sources for financing domestic capital is foreign saving a viable option for developing countries
Research Papers in Economics, 2004Co-Authors: Joshua Aizenman, Brian Pinto, Artur RadziwillAbstract:This paper proposes a new method for measuring the degree to which the domestic capital stock is self-financed. The main idea is to use the national accounts to construct a Self-Financing ratio, indicating what would have been the autarky stock of tangible capital supported by actual past domestic saving, relative to the actual stock of capital. We use the constructed measure of Self-Financing to evaluate the impact of the growing global financial integration on the sources of financing domestic capital stocks in developing countries. On average, 90% of the stock of capital in developing countries is self financed, and this fraction was surprisingly stable throughout the 1990s. The greater integration of financial markets has not changed the dispersion of Self-Financing rates, and the correlation between changes in de-facto financial integration and changes in Self-Financing ratios is statistically insignificant. There is no evidence of any “growth bonus†associated with increasing the financing share of foreign savings. In fact, the evidence suggests the opposite: throughout the 1990s, countries with higher selffinancing ratios grew significantly faster than countries with low Self-Financing ratios. This result persists even after controlling growth for the quality of institutions. We also find that higher volatility of the Self-Financing ratios is associated with lower growth rates, and that better institutions are associated with lower volatility of the Self-Financing ratios. These findings are consistent with the notion that financial integration may have facilitated diversification of assets and liabilities, but failed to offer new net sources of financing capital in developing countries.
