A model specifying traded financial assets, their price and payment processes, available information, and allowed admissible trading strategies. A self-financing portfolio generates wealth using gains on these assets. Absence of arbitrage and market completeness respectively concern whether trading can create a riskless profit from zero capital and whether every specified contingent claim can be replicated.
Recurring empirical regularities, such as heavy tails, weak return autocorrelation and volatility clustering, observed over specified datasets and sampling scales. They are modelling targets rather than exact universal laws. In particular, absence of linear autocorrelation does not imply independence or absence of nonlinear prediction.
A financial market model that omits trading frictions such as transaction costs and a difference between buying and selling prices. The exact idealization must still specify permitted holdings, short selling, and borrowing and lending terms; the worked binomial market allows divisible holdings and unrestricted borrowing at the bank growth factor.
Articles by others on the same topic
There are currently no matching articles.