English, Article edition: PRICING SECURITIES WITH EXCHANGE-IMPOSED PRICE LIMITS VIA RISK NEUTRAL VALUATION ARIE HAREL; GIORA HARPAZ; JACK CLARK FRANCIS

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Bookmark: http://trove.nla.gov.au/version/83043
Physical Description
  • article
Language
  • English

Edition details

Title
  • PRICING SECURITIES WITH EXCHANGE-IMPOSED PRICE LIMITS VIA RISK NEUTRAL VALUATION
Author
  • ARIE HAREL
  • GIORA HARPAZ
  • JACK CLARK FRANCIS
Physical Description
  • article
Notes
  • Asian and European financial markets impose daily price fluctuation limits on individual securities. In the US several futures exchanges are regulated by price fluctuation limits as well. The price limits in most exchanges are set daily, and they are usually based on a percentage change from the previous day's closing price. We show that the future cash flows of a security subject to price limit regulation resemble that of a distinctive contingent claim. Assuming that the security price follows a lognormal distribution, we use the risk-neutral valuation relation (RNVR) developed by [4] to derive the security valuation, in the presence of price fluctuation limits. The characteristics of the pricing formula are examined analytically and numerically.
  • Contingent claims, price limits, risk neutral valuation, security pricing
  • RePEc:wsi:ijtafx:v:10:y:2007:i:03:p:399-406
Language
  • English
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