This paper presents a novel risk-based approach for an optimal asset allocation problem with default risk, where a money market account, an ordinary share and a defaultable security are investment opportunities in a general non-Markovian economy incorporating random market parameters. The...

Recently, there has been a considerable interest in the Bayesian approach for explaining investors' behaviorial biases by incorporating conservative and representative heuristics when making financial decisions, (see, for example, Barberis, Shleifer and Vishny (1998)). To establish a...

<section xml:id="fut21613-sec-0001"> This paper is concerned with option valuation under a double regime‐switching model, where both the model parameters and the price level of the risky share depend on a continuous‐time, finite‐state, observable Markov chain. In this incomplete market set up, we first employ a generalized...</section>

This paper studies the effect of variance swap in hedging volatility risk under the mean-variance criterion. We consider two mean-variance portfolio selection problems under Heston's stochastic volatility model. In the first problem, the financial market is complete and contains three primitive...