Numeraire Invariance and application to Option Pricing and Hedging

Jamshidian, Farshid (2008): Numeraire Invariance and application to Option Pricing and Hedging.

Abstract

This is a short version of the paper of Exchange Options (2007), concentrating on the principle of numeraire invariance. It emphasizes application to unique pricing in arbitrage-free model, the derivation of hedge ratios and the PDE when price ratios are diffusions, explicit representations in the multivariate Poisson model, and the role played by homogeneity.

• Item Type: MPRA Paper
• Language: English
• Keywords: Numeraire invariance, hedging, self-financing trading strategy, predictable representation, unique pricing, arbitrage-free, martingale, homogeneous payoff, Markovian, It\^o's formula, SDE, PDE, geometric Brownian motion, exponential Poisson process
• Subjects: G - Financial Economics > G1 - General Financial Markets > G13 - Contingent Pricing ; Futures Pricing

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