Issues

 / 

1997

 / 

December

  

Physics of our days


Collectively fluctuating assets in the presence of arbitrage opportunities, and option pricing

 a,  b
a The University of Chicago, 5801 South Ellis Ave., Chicago, Illinois, 60637, USA
b Department of Physics and James Frank Institute, University of Chicago, Chicago, Illinois, USA

Methods of functional analysis are applied to describe collectively fluctuating default-free pure discount bonds subject to trading-related noise which generates arbitrage opportunities. Two key elements of the model are: (i) the naturally incorporated fixed bond price at maturity which is achieved by making use of only those fluctuating paths of price motion which terminate at a specified final condition, and (ii) the most attractive arbitrage opportunities between bonds with close maturities, with modeled a local linear approximation. The model can be written in different closed forms as a stochastic partial differential equation. The functional Black-Scholes equation for contingent claims is derived, and a connection with the conventional methods of option valuation is indicated.

Text can be downloaded in Russian. English translation is available on IOP Science.
PACS: 01.75.+m, 02.30.Sa, 02.90.+p, 89.90.+n (all)
DOI: 10.1070/PU1997v040n12ABEH000319
URL: https://ufn.ru/en/articles/1997/12/b/
Citation: Adamchuk A N, Esipov S E "Collectively fluctuating assets in the presence of arbitrage opportunities, and option pricing" Phys. Usp. 40 1239–1248 (1997)
BibTexBibNote ® (generic)BibNote ® (RIS)MedlineRefWorks

Оригинал: Адамчук А Н, Есипов С Е «Коллективно флуктуирующие активы при наличии арбитражных возможностей и оценка платежных обязательств» УФН 167 1295–1306 (1997); DOI: 10.3367/UFNr.0167.199712b.1295

© 1918–2019 Uspekhi Fizicheskikh Nauk
Email: ufn@ufn.ru Editorial office contacts About the journal Terms and conditions