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case1056137244.pdf (2.85 MB)
ETD Abstract Container
Abstract Header
Three essays on contingent claims pricing
Author Info
Li, Anlong
Permalink:
http://rave.ohiolink.edu/etdc/view?acc_num=case1056137244
Abstract Details
Year and Degree
1992, Doctor of Philosophy, Case Western Reserve University, Operations Research.
Abstract
This dissertation consists of three research topics in contemporary financial option pricing theories and their applications. The common theme of these topics involves the pricing of financial claims whose values become path-dependent when using the usual lattice approximating schemes. The first essay explores the potential of transformation and other schemes in constructing a sequence of simple binomial processes that weakly converges to the desired diffusion limit. Convergence results are established for the valuation of both European and American contingent claims when the underlying asset prices are approximated by simple binomial processes. It is also demonstrated how to construct reflecting or absorbing binomial processes to approximate diffusions with boundaries. Numerical examples demonstrate that the proposed simple approximations not only converge, but also give more accurate results than existing methods such as Nelson and Ramaswamy (1990), especially for longer maturities. Our purpose in essay 2 is two-fold. First, we extend some of the simple lattice-approximation methods for one-dimensional diffusions to higher dimensions and develop special lattices to approximate perfectly correlated diffusions. We then examine current modeling issues of the term structure of in terest rates, and demonstrate how to apply the approximation techniques developed here to handle path-dependence and multi-sources of uncertainty in these models. The last essay analyzes the investment decisions of insured banks under fixed-rate deposit insurance. The model takes into account the charter value and allows banks to dynamically revise their asset portfolios. Trade-offs exist between preserving the charter and exploiting deposit insurance. The optimal bank portfolio problem is solved analytically for a constant charter value. In any audit period, banks maximize their risk exposure before some critical time and act cautiously thereafter. The corresponding deposit insurance is shown to be a put option that matures at this critical time rather than at the audit date.
Committee
Peter Ritchken (Advisor)
Pages
142 p.
Keywords
contingent claims pricing
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Citations
Li, A. (1992).
Three essays on contingent claims pricing
[Doctoral dissertation, Case Western Reserve University]. OhioLINK Electronic Theses and Dissertations Center. http://rave.ohiolink.edu/etdc/view?acc_num=case1056137244
APA Style (7th edition)
Li, Anlong.
Three essays on contingent claims pricing.
1992. Case Western Reserve University, Doctoral dissertation.
OhioLINK Electronic Theses and Dissertations Center
, http://rave.ohiolink.edu/etdc/view?acc_num=case1056137244.
MLA Style (8th edition)
Li, Anlong. "Three essays on contingent claims pricing." Doctoral dissertation, Case Western Reserve University, 1992. http://rave.ohiolink.edu/etdc/view?acc_num=case1056137244
Chicago Manual of Style (17th edition)
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Document number:
case1056137244
Download Count:
906
Copyright Info
© 1992, all rights reserved.
This open access ETD is published by Case Western Reserve University School of Graduate Studies and OhioLINK.