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How to account for virtual arbitrage in the standard derivative pricing

Author

Listed:
  • Kirill Ilinski

    (University of Birmingham, UK)

Abstract

In this short note we show how virtual arbitrage opportunities can be modelled and included in the standard derivative pricing without changing the general framework.

Suggested Citation

  • Kirill Ilinski, 1999. "How to account for virtual arbitrage in the standard derivative pricing," Finance 9902002, University Library of Munich, Germany.
    • Handle: RePEc:wpa:wuwpfi:9902002
    Note: Type of Document - Postscript; prepared on UNIX Sparc TeX; to print on HP; pages: 7
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    References listed on IDEAS

    as
    1. Kirill Ilinski & Alexander Stepanenko, 1999. "Derivative pricing with virtual arbitrage," Papers cond-mat/9902046, arXiv.org.
    2. Merton, Robert C., 1976. "Option pricing when underlying stock returns are discontinuous," Journal of Financial Economics, Elsevier, vol. 3(1-2), pages 125-144.
    3. Black, Fischer & Scholes, Myron S, 1973. "The Pricing of Options and Corporate Liabilities," Journal of Political Economy, University of Chicago Press, vol. 81(3), pages 637-654, May-June.
    4. Hull, John C & White, Alan D, 1987. "The Pricing of Options on Assets with Stochastic Volatilities," Journal of Finance, American Finance Association, vol. 42(2), pages 281-300, June.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
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    Cited by:

    1. Matthias Otto, 1999. "Stochastic relaxational dynamics applied to finance: towards non-equilibrium option pricing theory," Papers cond-mat/9906196, arXiv.org, revised Oct 1999.
    2. Mauricio Contreras G, 2020. "Endogenous Stochastic Arbitrage Bubbles and the Black--Scholes model," Papers 2009.09329, arXiv.org.
    3. Mauricio Contreras & Rely Pellicer & Daniel Santiagos & Marcelo Villena, 2015. "Calibration and simulation of arbitrage effects in a non-equilibrium quantum Black-Scholes model by using semiclassical methods," Papers 1512.05377, arXiv.org.
    4. Otto, Matthias, 2001. "Finite arbitrage times and the volatility smile?," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 299(1), pages 299-304.
    5. Contreras G., Mauricio, 2021. "Endogenous stochastic arbitrage bubbles and the Black–Scholes model," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 583(C).
    6. Mauricio Contreras G. & Roberto Ortiz H, 2021. "Three little arbitrage theorems," Papers 2104.10187, arXiv.org.

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    More about this item

    Keywords

    asset pricing; virtual arbitrage;

    JEL classification:

    • G - Financial Economics

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