by William A. Birdthistle · 15 May 2016 · 375pp · 106,189 words
are priced just once a day.6 To understand the intricacies and dangers this practice poses to mutual fund investors, we must explore the idiosyncratic pricing mechanism more closely. Consider the challenge involved in figuring out the precise value of an entire mutual fund and, consequently, the price of a single share
by David Graeber · 3 Feb 2015 · 252pp · 80,636 words
aristocrat, whose 1944 book Bureaucracy argued that by definition, systems of government administration could never organize information with anything like the efficiency of impersonal market pricing mechanisms. However, extending the vote to the losers of the economic game would inevitably lead to calls for government intervention, framed as high-minded schemes for
by Steven Johnson · 5 Oct 2010 · 298pp · 81,200 words
Hayek launched his influential argument in the 1940s about the importance of price signals in market economies, he was observing a related phenomenon: the decentralized pricing mechanism of the marketplace allows an entrepreneur to gauge the relative value of his or her innovation. If you come up with an interesting new contraption
by Daniel C. Dennett · 15 Jan 1995 · 846pp · 232,630 words
Archimedean point from which global progress could be measured. Is it progress when you have to work an extra job to pay for the high-priced mechanic you have to hire to fix your car when it breaks because it is too complex for you to fix in the way you used
by Patrick J. Deneen · 9 Jan 2018 · 215pp · 61,435 words
separation of markets from social and religious contexts but people’s acceptance that their labor and its products were nothing more than commodities subject to price mechanisms, a transformative way of considering people and nature alike in newly utilitarian and individualistic terms. Yet market liberalism required treating both people and natural resources
by Laurie Garrett · 31 Oct 1994 · 1,293pp · 357,735 words
: Multinational Drug Companies and the Third World (London: Spokesman Books, 1977); UNCTAD Secretariat, “Dominant Positions of Market Power of Transnational Corporations: Use of the Transfer Pricing Mechanism,” Geneva, November 30, 1977; J. M. Starrels, “The World Health Organization, Resisting Third World Ideological Pressures” (Washington, D.C.: Heritage Foundation, 1985); R. Deitch, “Commentary
by Don Tapscott and Alex Tapscott · 9 May 2016 · 515pp · 126,820 words
go because of a change in relative prices, but because he is ordered to do so.”25 In other words, markets allocate resources via the price mechanism, but firms allocate resources via authoritative direction. Williamson went on to explain that there are two significant coordinating systems. First is the price system for
by Steven Johnson · 329pp · 88,954 words
point would be at Level 3, because 1 plus 3 minus 1 equals 3. “He was far”: Jacobs, 2000, 154. A related idea is the pricing mechanism of market economies as an information-processing system, as described by the libertarian demigod Friedrich von Hayek. “Long before the fall of communism, Hayek identified
by David Goldenberg · 2 Mar 2016 · 819pp · 181,185 words
the appropriate risk-minimizing hedge ratio is the beta of the spot price on the futures price, To estimate , we start with the equilibrium forward pricing mechanism when the underlier pays a proportional dividend yield. It says that where Pt is the spot price and is the forward price today (time=t
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and/or selling pressure that will change prices as they attempt to reach an equilibrium. In brief, there does not exist a consistent, linear, positive pricing mechanism in the presence of arbitrage opportunities. To put the Binomial option pricing model in context, we recall the distinction between two kinds of models, ROP
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we discussed in Chapter 4, section 4.6.1. This is a critical assumption, and it is needed to generate at least one positive, linear pricing mechanism. In other words, one cannot reasonably price financial instruments in a market that admits arbitrage. 13.5.2 Tool 2, Complete Markets or Replicability and
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discuss in Chapter 15, section 15.1. Or they could be a stock and a riskless bond. The key point is that all arbitrage-free pricing mechanisms yield the same, therefore unique, price on replicable claims. A market is complete if all reasonable contingent claims are replicable. That is, they can be
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to uniquely price derivative securities. That is, no-arbitrage is not a sufficient condition for uniquely pricing derivative securities. There are generally many linear, positive pricing mechanisms, all consistent with no-arbitrage, for non-replicable financial claims! Another way to say this is that in an incomplete market, there can be many
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because no linear, positive pricing mechanism exists in that world. In that case, hedging also hardly makes sense. Once we have a replicating portfolio, then market completeness implies that its price
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), (FTAP2), then gives us uniqueness of the pricing mechanism. As noted, replication is just another word for hedging. Replication gives us the ability to actually determine the unique price of the derivative security. Why?
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(N=1). But it is important to recognize that, in complete markets, there can only be one arbitrage-free price for each contingent claim. All pricing mechanisms, while they might look different, will produce exactly the same price on replicable claims. We know that there is a no-arbitrage price, because we
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-arbitrage condition, we have little hope of pricing even the instruments underlying derivatives, because the first FTAP1 tells us that there is no linear, positive pricing mechanism (EMM) when the market permits arbitrage. There would not even be state prices! No-arbitrage is certainly the basis for pricing financial instruments, and arbitrage
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Chapter 15, that the existence of a linear, positive pricing mechanism that can be used to price all contingent claims (including the underlying asset), is equivalent to the existence of an EMM for the discounted, underlying
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pricing, without making further assumptions. Therefore, all that we can prove by using the no-arbitrage assumption only, is that there exists a linear, positive pricing mechanism that can be used to price all assets. Or the existence of an EMM for the discounted underlying price process, which is the same thing
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’. A reader might easily interpret this as ‘uniquely priced by arbitrage’, since most readers probably don’t think in terms of non-uniqueness of the pricing mechanism in a world of no-arbitrage. However, no claim is uniquely priced by arbitrage, unless it is replicable (FTAP2). Of course, we can’t do
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portfolio, which is a direct consequence of the assumption of no-arbitrage (or at least of the law of one price (LOP)). Knowing that the pricing mechanism is unique if it exists is nice but rather empty, except in a mathematical sense. However, also as discussed, if we want to claim unique
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priced within the Black–Scholes scenario. 17.2 FORMAL RISK-NEUTRAL VALUATION WITHOUT REPLICATION 17.2.1 Constructing EMMs Once we have a linear, positive pricing mechanism, it is an easy exercise to determine ‘risk-neutral probabilities’ and an EMM. At this point, it is useful to revisit Chapter 15, section 15
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equivalent ‘formally risk-neutral’ representation of such prices (an EMM). There will be as many EMMs (risk-neutral representations) as there are non-risk neutral pricing mechanisms implied by no-arbitrage. Note that no-arbitrage (FTAP1) does not say that the only way to price assets in an arbitrage-free market is
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when discounted by 1+r. It doesn’t follow that this construction represents the only way to derive an EMM from a given, positive linear pricing mechanism. There would be many EMMs for the state prices if they were not replicable in terms of some given (exogenous) assets. 17.2.2 Interpreting
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different ‘market’ price of risk for each security i, for each investor j. But then, there would be a corresponding number of multiple, linear, positive pricing mechanisms. Turning to completeness (replicability), it follows that uniqueness of the Sharpe ratio (MPR) implies uniqueness of the EMM for the discounted price process, and vice
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-neutralization of 604; preference-free risk-neutral valuation 598, 600; price contingent claims with unhedgeable risks 599–601; pricing by arbitrage and FTAP2 597–8; pricing mechanism 596; relative risks of hedge portfolio’s return, analysis of 618–24; risk-averse investor in hedge portfolio, role of risk premia for 620–4
by Cesar Hidalgo · 1 Jun 2015 · 242pp · 68,019 words
collection of fluid and frictionless market transactions but a set of islands of conscious power, shielded from each other and from the dynamics of the price mechanisms. Firms are hierarchical, Coase emphasized, and the interactions between a firm’s workers are often political. So in Coase’s view, hiring a worker was
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firm was brilliant and simple. It was based on the idea that economic transactions are costly and not as fluid as the cheerleaders of the price mechanism religiously believed. Often, market transactions require negotiations, drafting of contracts, setting up inspections, settling disputes, and so on. These transaction costs can help us understand
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