() and Irina Slinko
Tomas Björk: Dept. of Finance, Stockholm School of Economics, Postal: Stockholm School of Economics, P.O. Box 6501, SE-113 83 Stockholm, Sweden
Irina Slinko: Dept. of Finance, Stockholm School of Economics, Postal: Stockholm School of Economics, P.O. Box 6501, SE-113 83 Stockholm, Sweden
Abstract: We consider an incomplete market in the form of a multidimensional Markovian factor model, driven by a general marked point process (representing discrete jump events) as well as by a standard multidimensional Wiener process. Within this framework we study arbitrage free good deal pricing bounds for derivative assets along the lines of Cochrane and Saa-Requejo, extending the CSR results to the point process case. As a concrete application we present numerical results for the classic Merton jump-diffusion model. As a by product of the general theory we also extend the Hansen-Jagannathan bounds for the Sharpe Ratio to the point process setting.
35 pages, February 3, 2004
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