Randomized stopping times and early exercise for american derivatives in dry markets
Autor(a) principal: | |
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Data de Publicação: | 2016 |
Outros Autores: | |
Tipo de documento: | Artigo |
Idioma: | eng |
Título da fonte: | Repositório Científico de Acesso Aberto de Portugal (Repositórios Cientìficos) |
Texto Completo: | http://hdl.handle.net/10362/20847 |
Resumo: | This paper studies the impact of dry markets for underlying assets on the optimal stopping time and optimal exercise policy of American derivatives. We consider that the underlying is transacted at all points in time except for a subset of dates, for which there is an exogenous probability that trading may exist. Using superreplicating strategies, we derive expectation representations for the range of arbitrage-free values of the derivatives. For arbitrary probability, an enlarged filtration jointly induced by the price process and the market existence process makes ordinary stopping times sufficient to characterize such representation. For the deterministic case where the probability is zero, randomized stopping times are required. Several comparisons of the ranges obtained with the two market restrictions are performed. Finally, we conclude that market incompleteness caused by dryness may delay the optimal exercise of American derivatives. |
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Randomized stopping times and early exercise for american derivatives in dry marketsThis paper studies the impact of dry markets for underlying assets on the optimal stopping time and optimal exercise policy of American derivatives. We consider that the underlying is transacted at all points in time except for a subset of dates, for which there is an exogenous probability that trading may exist. Using superreplicating strategies, we derive expectation representations for the range of arbitrage-free values of the derivatives. For arbitrary probability, an enlarged filtration jointly induced by the price process and the market existence process makes ordinary stopping times sufficient to characterize such representation. For the deterministic case where the probability is zero, randomized stopping times are required. Several comparisons of the ranges obtained with the two market restrictions are performed. Finally, we conclude that market incompleteness caused by dryness may delay the optimal exercise of American derivatives.NOVA School of Business and Economics (NOVA SBE)RUNAmaro de Matos, JoãoLacerda, Ana2017-05-30T14:02:59Z2016-112016-11-01T00:00:00Zinfo:eu-repo/semantics/publishedVersioninfo:eu-repo/semantics/articleapplication/pdfhttp://hdl.handle.net/10362/20847eng2162-2442PURE: 1939681https://doi.org/10.4236/jmf.2016.65057info:eu-repo/semantics/openAccessreponame:Repositório Científico de Acesso Aberto de Portugal (Repositórios Cientìficos)instname:Agência para a Sociedade do Conhecimento (UMIC) - FCT - Sociedade da Informaçãoinstacron:RCAAP2024-03-11T04:06:44Zoai:run.unl.pt:10362/20847Portal AgregadorONGhttps://www.rcaap.pt/oai/openaireopendoar:71602024-03-20T03:26:30.714490Repositório Científico de Acesso Aberto de Portugal (Repositórios Cientìficos) - Agência para a Sociedade do Conhecimento (UMIC) - FCT - Sociedade da Informaçãofalse |
dc.title.none.fl_str_mv |
Randomized stopping times and early exercise for american derivatives in dry markets |
title |
Randomized stopping times and early exercise for american derivatives in dry markets |
spellingShingle |
Randomized stopping times and early exercise for american derivatives in dry markets Amaro de Matos, João |
title_short |
Randomized stopping times and early exercise for american derivatives in dry markets |
title_full |
Randomized stopping times and early exercise for american derivatives in dry markets |
title_fullStr |
Randomized stopping times and early exercise for american derivatives in dry markets |
title_full_unstemmed |
Randomized stopping times and early exercise for american derivatives in dry markets |
title_sort |
Randomized stopping times and early exercise for american derivatives in dry markets |
author |
Amaro de Matos, João |
author_facet |
Amaro de Matos, João Lacerda, Ana |
author_role |
author |
author2 |
Lacerda, Ana |
author2_role |
author |
dc.contributor.none.fl_str_mv |
NOVA School of Business and Economics (NOVA SBE) RUN |
dc.contributor.author.fl_str_mv |
Amaro de Matos, João Lacerda, Ana |
description |
This paper studies the impact of dry markets for underlying assets on the optimal stopping time and optimal exercise policy of American derivatives. We consider that the underlying is transacted at all points in time except for a subset of dates, for which there is an exogenous probability that trading may exist. Using superreplicating strategies, we derive expectation representations for the range of arbitrage-free values of the derivatives. For arbitrary probability, an enlarged filtration jointly induced by the price process and the market existence process makes ordinary stopping times sufficient to characterize such representation. For the deterministic case where the probability is zero, randomized stopping times are required. Several comparisons of the ranges obtained with the two market restrictions are performed. Finally, we conclude that market incompleteness caused by dryness may delay the optimal exercise of American derivatives. |
publishDate |
2016 |
dc.date.none.fl_str_mv |
2016-11 2016-11-01T00:00:00Z 2017-05-30T14:02:59Z |
dc.type.status.fl_str_mv |
info:eu-repo/semantics/publishedVersion |
dc.type.driver.fl_str_mv |
info:eu-repo/semantics/article |
format |
article |
status_str |
publishedVersion |
dc.identifier.uri.fl_str_mv |
http://hdl.handle.net/10362/20847 |
url |
http://hdl.handle.net/10362/20847 |
dc.language.iso.fl_str_mv |
eng |
language |
eng |
dc.relation.none.fl_str_mv |
2162-2442 PURE: 1939681 https://doi.org/10.4236/jmf.2016.65057 |
dc.rights.driver.fl_str_mv |
info:eu-repo/semantics/openAccess |
eu_rights_str_mv |
openAccess |
dc.format.none.fl_str_mv |
application/pdf |
dc.source.none.fl_str_mv |
reponame:Repositório Científico de Acesso Aberto de Portugal (Repositórios Cientìficos) instname:Agência para a Sociedade do Conhecimento (UMIC) - FCT - Sociedade da Informação instacron:RCAAP |
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Agência para a Sociedade do Conhecimento (UMIC) - FCT - Sociedade da Informação |
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RCAAP |
institution |
RCAAP |
reponame_str |
Repositório Científico de Acesso Aberto de Portugal (Repositórios Cientìficos) |
collection |
Repositório Científico de Acesso Aberto de Portugal (Repositórios Cientìficos) |
repository.name.fl_str_mv |
Repositório Científico de Acesso Aberto de Portugal (Repositórios Cientìficos) - Agência para a Sociedade do Conhecimento (UMIC) - FCT - Sociedade da Informação |
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1799137894793740288 |