Portfolio Theory for Squared Returns Correlated Across Time

Eberlein, Ernst; Madan, Dilip B.

doi:10.2139/ssrn.2635632

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2019

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“…Although there are a number of literatures based on conic finance theory, they focus on credit risk [21,22], design of portfolio [23,24], and hedging of financial and insurance risks [25,26]. To the best of our knowledge, there is no literature research on valuation of ask and bid prices for geometric Asian option.…”

Section: Introductionmentioning

confidence: 99%

Estimation of Ask and Bid Prices for Geometric Asian Options

Chen

Xiang

Luo

2019

Discrete Dynamics in Nature and Society

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Traditional derivative pricing theories usually focus on the risk-neutral price or the equilibrium price. However, in highly competitive financial markets, we observed two prices which are called bid and ask prices; then the unique risk-neutral price fails to hold. In this paper, within the framework of conic finance, we provide a useful approach to evaluate the ask and bid prices of geometric Asian options and obtain the explicit formulas for the ask and bid prices. Finally, numerical examples show that the higher the market liquidity parameter , the wider the spread and hence the less the liquidity.

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