Journal of Mathematical Finance

Volume 4, Issue 2 (February 2014)

ISSN Print: 2162-2434   ISSN Online: 2162-2442

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On Local Times: Application to Pricing Using Bid-Ask

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DOI: 10.4236/jmf.2014.42008    3,583 Downloads   5,710 Views  

ABSTRACT

In this paper, we derive the evolution of a stock price from the dynamics of the “best bid” and “best ask”. Under the assumption that the bid and ask prices are described by semimartingales, we study the completeness and the possibility for arbitrage on such a market. Further, we discuss (insider) hedging for contingent claims with respect to the stock price process.

Share and Cite:

P. Kettler, O. Menoukeu-Pamen and F. Proske, "On Local Times: Application to Pricing Using Bid-Ask," Journal of Mathematical Finance, Vol. 4 No. 2, 2014, pp. 84-94. doi: 10.4236/jmf.2014.42008.

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