Modelling Derivatives Pricing Mechanisms with Their Generating Functions
| dc.creator | Peng, Shige | |
| dc.date | 2006-05-23 | |
| dc.date.accessioned | 2026-07-07T12:07:18Z | |
| dc.date.available | 2026-07-07T12:07:18Z | |
| dc.description | In this paper we study dynamic pricing mechanisms of financial derivatives. A typical model of such pricing mechanism is the so-called g--expectation defined by solutions of a backward stochastic differential equation with g as its generating function. Black-Scholes pricing model is a special linear case of this pricing mechanism. We are mainly concerned with two types of pricing mechanisms in an option market: the market pricing mechanism through which the market prices of options are produced, and the ask-bid pricing mechanism operated through the system of market makers. The later one is a typical nonlinear pricing mechanism. Data of prices produced by these two pricing mechanisms are usually quoted in an option market. We introduce a criteria, i.e., the domination condition (A5) in (2.5) to test if a dynamic pricing mechanism under investigation is a g--pricing mechanism. This domination condition was statistically tested using CME data documents. The result of test is significantly positive. We also provide some useful characterizations of a pricing mechanism by its generating function. | |
| dc.identifier | https://arxiv.org/abs/math/0605599 | |
| dc.identifier | http://arxiv.org/abs/math/0605599 | |
| dc.identifier.uri | http://salesiana.dossiersoluciones.com/handle/123456789/208926 | |
| dc.subject | Probability | |
| dc.subject | Pricing of Securities | |
| dc.subject | 60H10, 60H05, 60H30, 60J60, 60J65 | |
| dc.title | Modelling Derivatives Pricing Mechanisms with Their Generating Functions | |
| dc.type | text |