2 research outputs found
Change of measure under the hard-to-borrow model
As the Securities and Exchange Commission(SEC) has implemented a new
regulation on short-sellings, short-sellers are required to repurchase stocks
once the clearing risk rises to a certain level. Avellaneda and Lipkin proposed
a fully coupled SDE system to describe the mechanism which is referred as
Hard-To-Borrow(HTB) models. Guiyuan Ma obtained the PDE system for both
American and European options. There is a technical error in Guiyuan Ma where
two correlated Brownian motion should be converted before change of measure. In
this paper, I will provide supplement conditions.Comment: 7 page
Pricing contingent claims with short selling bans
Guo and Zhu (2017) recently proposed an equal-risk pricing approach to the
valuation of contingent claims when short selling is completely banned and two
elegant pricing formulae are derived in some special cases. In this paper, we
establish a unified framework for this new pricing approach so that its range
of application can be significantly expanded. The main contribution of our
framework is that it not only recovers the analytical pricing formula derived
by Guo and Zhu (2017) when the payoff is monotonic, but also numerically
produces equal-risk prices for contingent claims with non-monotonic payoffs, a
task which has not been accomplished before. Furthermore, we demonstrate how a
short selling ban affects the valuation of contingent claims by comparing
equal-risk prices with Black-Scholes prices