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Financial Markets With No Riskless (Safe) Asset

Author

Listed:
  • SVETLOZAR T. RACHEV

    (Department of Mathematics and Statistics, Texas Tech University, Lubbock, TX 79409, USA)

  • STOYAN V. STOYANOV

    (College of Business, Stony Brook University, Stony Brook, NY 11794, USA)

  • FRANK J. FABOZZI

    (EDHEC Business School, 393, Promenade des Anglais, BP3116, 06202 Nice Cedex 3, France)

Abstract
We study markets with no riskless (safe) asset. We derive the corresponding Black–Scholes–Merton option pricing equations for markets where there are only risky assets which have the following price dynamics: (i) continuous diffusions; (ii) jump-diffusions; (iii) diffusions with stochastic volatilities, and; (iv) geometric fractional Brownian and Rosenblatt motions. No-arbitrage and market-completeness conditions are derived in all four cases.

Suggested Citation

  • Svetlozar T. Rachev & Stoyan V. Stoyanov & Frank J. Fabozzi, 2017. "Financial Markets With No Riskless (Safe) Asset," International Journal of Theoretical and Applied Finance (IJTAF), World Scientific Publishing Co. Pte. Ltd., vol. 20(08), pages 1-24, December.
    • Handle: RePEc:wsi:ijtafx:v:20:y:2017:i:08:n:s0219024917500546
    DOI: 10.1142/S0219024917500546
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    Cited by:

    1. Abootaleb Shirvani & Frank J. Fabozzi & Stoyan V. Stoyanov, 2020. "Option Pricing in an Investment Risk-Return Setting," Papers 2001.00737, arXiv.org.
    2. Svetlozar Rachev & Nancy Asare Nyarko & Blessing Omotade & Peter Yegon, 2023. "Bachelier's Market Model for ESG Asset Pricing," Papers 2306.04158, arXiv.org.
    3. Nancy Asare Nyarko & Bhathiya Divelgama & Jagdish Gnawali & Blessing Omotade & Svetlozar Rachev & Peter Yegon, 2023. "Exploring Dynamic Asset Pricing within Bachelier Market Model," Papers 2307.04059, arXiv.org.
    4. Davide Lauria & W. Brent Lindquist & Stefan Mittnik & Svetlozar T. Rachev, 2022. "ESG-Valued Portfolio Optimization and Dynamic Asset Pricing," Papers 2206.02854, arXiv.org.
    5. W. Brent Lindquist & Svetlozar T. Rachev, 2024. "Alternatives to classical option pricing," Papers 2403.17187, arXiv.org.
    6. Yuan Hu & W. Brent Lindquist & Svetlozar T. Rachev & Frank J. Fabozzi, 2023. "Option pricing using a skew random walk pricing tree," Papers 2303.17014, arXiv.org.

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