Book contents
- Frontmatter
- Contents
- Preface
- Part I Point Processes
- Part II Optimal Control in Discrete Time
- Part III Optimal Control in Continuous Time
- Part IV Non-Linear Filtering Theory
- Part V Applications in Financial Economics
- 16 Basic Arbitrage Theory
- 17 Poisson-Driven Stock Prices
- 18 The Simplest Jump-Diffusion Model
- 19 A General Jump-Diffusion Model
- 20 The Merton Model
- 21 Determining a Unique Q
- 22 Good-Deal Bounds
- 23 Diversifiable Risk
- 24 Credit Risk and Cox Processes
- 25 Interest-Rate Theory
- 26 Equilibrium Theory
- References
- Index of Symbols
- Subject Index
23 - Diversifiable Risk
from Part V - Applications in Financial Economics
Published online by Cambridge University Press: 27 May 2021
Book contents
- Frontmatter
- Contents
- Preface
- Part I Point Processes
- Part II Optimal Control in Discrete Time
- Part III Optimal Control in Continuous Time
- Part IV Non-Linear Filtering Theory
- Part V Applications in Financial Economics
- 16 Basic Arbitrage Theory
- 17 Poisson-Driven Stock Prices
- 18 The Simplest Jump-Diffusion Model
- 19 A General Jump-Diffusion Model
- 20 The Merton Model
- 21 Determining a Unique Q
- 22 Good-Deal Bounds
- 23 Diversifiable Risk
- 24 Credit Risk and Cox Processes
- 25 Interest-Rate Theory
- 26 Equilibrium Theory
- References
- Index of Symbols
- Subject Index
Summary
In this chapter we study a large market with diversifiable jump risk. The question to solve is to see whether no arbitrage implies that the diversifiable risk is not priced by the market. It turns out that the answer is yes, but only asymptotically.
- Type
- Chapter
- Information
- Point Processes and Jump DiffusionsAn Introduction with Finance Applications, pp. 249 - 259Publisher: Cambridge University PressPrint publication year: 2021