Nyarko, N.A.; Divelgama, B.; Gnawali, J.; Omotade, B.; Rachev, S.T.; Yegon, P. Exploring Dynamic Asset Pricing within Bachelier’s Market Model. J. Risk Financial Manag.2023, 16, 352.
Nyarko, N.A.; Divelgama, B.; Gnawali, J.; Omotade, B.; Rachev, S.T.; Yegon, P. Exploring Dynamic Asset Pricing within Bachelier’s Market Model. J. Risk Financial Manag. 2023, 16, 352.
Nyarko, N.A.; Divelgama, B.; Gnawali, J.; Omotade, B.; Rachev, S.T.; Yegon, P. Exploring Dynamic Asset Pricing within Bachelier’s Market Model. J. Risk Financial Manag.2023, 16, 352.
Nyarko, N.A.; Divelgama, B.; Gnawali, J.; Omotade, B.; Rachev, S.T.; Yegon, P. Exploring Dynamic Asset Pricing within Bachelier’s Market Model. J. Risk Financial Manag. 2023, 16, 352.
Abstract
This paper delves into the dynamics of asset pricing within Bachelier’s market model (BMM), elucidating the representation of risky asset price dynamics and the definition of riskless assets. It highlights the fundamental differences between BMM and the Black-Scholes-Merton market model (BSMMM), including the extension of BMM to handle assets yielding a simple dividend. Our investigation further explores Bachelier’s term structure of interest rates (BTSIR), introducing a novel version of Bachelier’s Heath-Jarrow-Morton model and adapting the Hull-White interest rate model to fit BMM. The study concludes by examining the applicability of BMM in real-world scenarios, such as those involving environmental, social, and governance (ESG)-adjusted stock prices and commodity spreads.
Keywords
Bachelier’s market model; Bachelier’s partial differential equation and option pricing; Bachelier’s term structure of interest rates
Subject
Business, Economics and Management, Finance
Copyright:
This is an open access article distributed under the Creative Commons Attribution License which permits unrestricted use, distribution, and reproduction in any medium, provided the original work is properly cited.
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