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On Modelling Long Term Stock Returns with Ergodic Diffusion Processes : Arbitrage and Arbitrage-Free Specifications
Author
Source
Journal of Applied Mathematics and Stochastic Analysis
Issue
Vol. 2009, Issue 2009 (31 Dec. 2009), pp.1-16, 16 p.
Publisher
Hindawi Publishing Corporation
Publication Date
2009-09-23
Country of Publication
Egypt
No. of Pages
16
Main Subjects
Abstract EN
We investigate the arbitrage-free property of stock price models where the local martingale component is based on an ergodic diffusion with a specified stationary distribution.
These models are particularly useful for long horizon asset-liability management as they allow the modelling of long term stock returns with heavy tail ergodic diffusions, with tractable, time homogeneous dynamics, and which moreover admit a complete financial market, leading to unique pricing and hedging strategies.
Unfortunately the standard specifications of these models in literature admit arbitrage opportunities.
We investigate in detail the features of the existing model specifications which create these arbitrage opportunities and consequently construct a modification that is arbitrage free.
American Psychological Association (APA)
Wong, Bernard. 2009. On Modelling Long Term Stock Returns with Ergodic Diffusion Processes : Arbitrage and Arbitrage-Free Specifications. Journal of Applied Mathematics and Stochastic Analysis،Vol. 2009, no. 2009, pp.1-16.
https://search.emarefa.net/detail/BIM-455246
Modern Language Association (MLA)
Wong, Bernard. On Modelling Long Term Stock Returns with Ergodic Diffusion Processes : Arbitrage and Arbitrage-Free Specifications. Journal of Applied Mathematics and Stochastic Analysis No. 2009 (2009), pp.1-16.
https://search.emarefa.net/detail/BIM-455246
American Medical Association (AMA)
Wong, Bernard. On Modelling Long Term Stock Returns with Ergodic Diffusion Processes : Arbitrage and Arbitrage-Free Specifications. Journal of Applied Mathematics and Stochastic Analysis. 2009. Vol. 2009, no. 2009, pp.1-16.
https://search.emarefa.net/detail/BIM-455246
Data Type
Journal Articles
Language
English
Notes
Includes bibliographical references
Record ID
BIM-455246