Financial markets in continuous time. Translated from the French by Anna Kennedy
asset pricingcomplete marketsequilibriumfinancial marketsinterest ratesoption pricingutility maximization
Signal detection and filtering (aspects of stochastic processes) (60G35) Applications of stochastic analysis (to PDEs, etc.) (60H30) Introductory exposition (textbooks, tutorial papers, etc.) pertaining to game theory, economics, and finance (91-01) General equilibrium theory (91B50) Stochastic models in economics (91B70) Actuarial science and mathematical finance (91Gxx)
This book gives an introduction to the theory of financial markets and its applications for the pricing and hedging of financial instruments. For an introductory text, the range of topics covered is amazingly broad. The authors discuss absence of arbitrage and martingale measures, option pricing in complete markets, maximizing expected utility from terminal wealth and from consumption, basics of interest rate theory, equilibrium for financial markets, some exotic options, and some results on incomplete markets. Many ideas and concepts are first introduced and studied in very simple discrete models, and it is particularly remarkable how many interesting developments are already explained in the first chapter in the framework of a simple one-period model. The material is chosen well and covers a considerable part of the subject area as can be seen from the following list of chapter titles: 1. The discrete case, 2. Dynamic models in discrete time, 3. The Black-Scholes formula, 4. Portfolios optimizing wealth and consumption, 5. The yield curve, 6. Equilibrium of financial markets in discrete time, 7. Equilibrium of financial markets in continuous time. The complete markets case, 8. Incomplete markets, 9. Exotic options. Annexes to various chapters explain more technical points that are not directly addressed in the main text, and there are two separate appendices on Brownian motion and on numerical methods. Somewhat unfortunately, the presentation of the results is not always as good as the choice of topics. Although (or because) the authors are well aware of the subtleties of stochastic calculus in continuous time, they have chosen too often for my taste to give arguments that are only intuitive, and while these can always be made rigorous, it usually needs some substantial effort that is not made in the book. There are quite a few mathematical inaccuracies (like too many or too few conditions for stated results), and teaching a mathematical course on the basis of the book will require a lot of additional work as well as a sound background knowledge in stochastic processes. But with this proviso and caveat in mind, readers should still benefit a lot from the good mixture of topic choice, explanation of ideas, and general overview that this book has to offer.
- On the expected diameter of an \(L_{2}\)-bounded martingale
- Variational formulation of a general equilibrium model with incomplete financial markets and numeraire assets: existence
- How to determine exchange rates under risk neutrality: a note
- The completeness and incompleteness of financial markets in economies driven by diffusion processes
- Taylor approximation of incomplete Radner equilibrium models
- Optimal stopping problem associated with jump-diffusion processes
- Interest rates parity and no arbitrage as equivalent equilibrium conditions in the international financial assets and goods markets
- Existence and uniqueness of Arrow-Debreu equilibria with consumptions in \(\mathbf{L}^0_+\)
- Existence of financial equilibria in continuous time with potentially complete markets
- scientific article; zbMATH DE number 50702 (Why is no real title available?)
- Approximation of non-Lipschitz SDEs by Picard iterations
- Multi-firm voluntary disclosures for correlated operations
- Existence of an endogenously complete equilibrium driven by a diffusion
- scientific article; zbMATH DE number 1393004 (Why is no real title available?)
- The role of (quasi) analyticity in establishing completeness of financial markets equilibria
- The sound of silence: equilibrium filtering and optimal censoring in financial markets
- Dynamic equilibrium with insider information and general uninformed agent utility
- Allocation of risks and equilibrium in markets with finitely many traders
- Optimal investment under partial information
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