Liquidity risk and arbitrage pricing theory
نویسندگان
چکیده
منابع مشابه
Liquidity risk and arbitrage pricing theory
Classical theories of financialmarkets assume an infinitely liquidmarket and that all traders act as price takers. This theory is a good approximation for highly liquid stocks, although even there it does not apply well for large traders or for modelling transaction costs. We extend the classical approach by formulating a new model that takes into account illiquidities. Our approach hypothesize...
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We shall study the paper by Cetin, Jarrow, Protter, [1]. This pa-per extends classical arbitrage pricing theory to include liquidity risk bystudying an economy where the security’s price depends on the trade size.Extended first and second fundamental theorems of asset pricing are in-vestigated. In an approximately complete market, derivative prices areshown to be the cla...
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The purpose of this paper is to review the recent derivatives security research involving liquidity risk and to summarize its implications for practical risk management. The literature supports three general conclusions. The first is that the classical option price is "on average" true, even given liquidity risk. Second, it is well known that although the classical (theoretical) option hedge ca...
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We generalize the Arbitrage Pricing Theory (APT) to include the contribution of virtual arbitrage opportunities. We model the arbitrage return by a stochastic process. The latter is incorporated in the APT framework to calculate the correction to the APT due to the virtual arbitrage opportunities. The resulting relations reduce to the APT for an infinitely fast market reaction or in the case wh...
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ژورنال
عنوان ژورنال: Finance and Stochastics
سال: 2004
ISSN: 0949-2984,1432-1122
DOI: 10.1007/s00780-004-0123-x