TITLE:
On Local Times: Application to Pricing Using Bid-Ask
AUTHORS:
Paul C. Kettler, Olivier Menoukeu-Pamen, Frank Proske
KEYWORDS:
Order Statistics; Semimartingales; Local Times; Arbitrage
JOURNAL NAME:
Journal of Mathematical Finance,
Vol.4 No.2,
February
19,
2014
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.