Assa, H., Gospodinov, N. (2018) Market consistent valuations with financial imperfection. Decisions in Economics and Finance, 41 (1). pp. 65-90. ISSN 1593-8883. (doi:10.1007/s10203-018-0207-2) (KAR id:87561)
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Language: English
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Official URL: http://dx.doi.org/10.1007/s10203-018-0207-2 |
Abstract
In this paper, we study market consistent valuations in imperfect markets. In the first part of the paper, we observe that in an imperfect market one needs to distinguish two type of market consistencies, namely types I and II. We show that while market consistency of type I holds without very strong conditions, market consistency of type II (which in the literature is known as the usual definition of market consistency) is only well defined in perfect markets. This is important since the existing literature on market consistency considers perfect markets where the two market consistencies are equivalent. In the second part of the paper, by introducing a best estimator we find strong connections between hedging and market consistency of either type. We show under very general conditions, the type I and the type II market consistent evaluators are best estimators, and establish a two-step representation for the market consistent risk evaluators. In the third part of the paper, we present several families of market consistent evaluators in imperfect markets.
Item Type: | Article |
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DOI/Identification number: | 10.1007/s10203-018-0207-2 |
Subjects: | H Social Sciences |
Divisions: | Divisions > Kent Business School - Division > Department of Accounting and Finance |
Depositing User: | Hirbod Assa |
Date Deposited: | 28 Apr 2021 15:06 UTC |
Last Modified: | 09 Dec 2022 04:04 UTC |
Resource URI: | https://kar.kent.ac.uk/id/eprint/87561 (The current URI for this page, for reference purposes) |
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